Down Payment Options:
In Canada, the minimum down payment required to purchase property is 5% of the purchase price. The option to get approved for a mortgage with 0% down payment no longer exists.
However, there are some traditional and creative options that still meet these guidelines, which you may be able to participate in.
These are as follows:
- Flex Down
- Gifted Down Payment
- RRSP’s – First Time Home Buyer
- Down Payment from Own Sources
- Lender Subsidized Down Payment
This is a program offered by some lenders and mortgage insurers, whereby you’ll be approved to borrow the 5% down payment from a lender as long as your credit score is strong enough. Even with strong credit, approval for this will vary with each situation.
This borrowed down payment can be in the form of a personal loan, line of credit (secured or unsecured), or existing credit card. Remember that you’ll still need to make monthly payments to service this ‘down payment loan’, as well as your new mortgage payments.
Gifted Down Payment:
This is a situation where the lender and mortgage insurer accept that a family member is giving you the down payment of 5% or more.
The family member must be an immediate relative (parent, brother, sister, etc), as opposed to an uncle or cousin. In order to facilitate this, you and your immediate family member will be asked to sign a gift letter verifying the down payment amount and who it’s from.
RRSP’s – First Time Home Buyer:
This is a great program offered by the Canada Customs and Revenue Agency, and details can be found on their website (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html).
In summary, the Gov’t will allow you as a first time home buyer to withdraw your RRSP’s to use for a down payment without charging you a tax penalty, as long as you pay back the entire amount borrowed over time.
In addition, they will allow you a 2-3 year grace period before you have to start paying any of it back. After that grace period, you’re required to pay back 1/15 of the total amount drawn over a 15 yr period of time.
Lastly, if you’ve bought property before and it’s been 7 years since you’ve done so, the Gov’t will allow you to become a ‘first time home buyer’ again and to take advantage of this program.
Down Payment From Own Sources:
This is the most traditional option, where you have the down payment in your savings account or other investments (5% or more). In this case, you will be required to provide a 3-month history on the account that the down payment is coming from, as a way of proving that it’s truly from your own sources.
For those of you applying for a mortgage that store your down payment cash ‘underneath your mattress’ or in a cookie jar at home, I would recommend that you deposit this money into a bank account as soon as possible.
Lender Subsidized Down Payment:
If you have excellent credit and are willing to pay higher interest rates, a small handful of lenders will actually advance you the 5% down payment at the time that your mortgage funds (your possession date).
Besides tight qualifying guidelines for this program, it is usually only available for 5 or 7 year terms, fixed rates.
In addition, if you do any kind of refinancing or decide to sell your property before the mortgage term matures, you’ll be required to pay back the entire down payment amount to the lender before proceeding.