Sep 8, 2020 | Mortgages | 0 comments

Calgary Mortgages With No Down Payments?

Mortgages | 0 comments

As we all know, a down payment is required when obtaining mortgages in Canada. That being said, is it
possible to obtain a mortgage that requires no down payment? If so, is it ideal? Below are the facts that you need to know if you are planning on having a no down payment mortgage.

Word of advice: If you are planning to go through a no down payment mortgage, reach out to one of our expert mortgage brokers to assist you in navigating this tricky mortgage product! 



No Down Payment: Does it exist?

In 2008, the Canadian government put an end to zero down payment mortgages. This means that technically it is not legally possible to have a no down payment mortgage. However, there is an approach to get a mortgage without a CASH down payment. This can be achieved by a financial maneuver where a buyer is borrowing the minimum down payment.

This financial movement is called FLEX DOWN.  This means that the 5%  down payments that would be typically paid in cash, will be borrowed from your credit card or other credit lines available.

These loans are typically more expensive and riskier than the normal/traditional mortgages though and shouldn’t be something you jump into without professional consultation. 



Should you go through with a Zero Down Payment mortgage?

Unfortunately, it’s not easy to advise on this in general terms. As a general rule, we typically would say that it is not a good decision to get a zero down payment mortgage.  It is riskier for buyers, and not always an easy process to go through. Here are a few reasons why you may consider not obtaining a zero down mortgage. 

  • Higher Default insurance premiums

Down payments that are less than 20% of the price of the home are required to have mortgage default insurance. This means borrowing the minimum down payment will result in a higher mortgage default insurance expense for the beside. For example, some insurers charge an extra .50% for zero down payment mortgages. 

  • No Equity In Your Home

A small down payment, say 5% for example, won’t help you through tight situations in case you need to sell your home. Borrowing the down payment will leave you with little to no home equity if you bought at market value. Small fluctuations in the market (negatively) could result in you having to come up with cash to cover your costs of selling that you may not have. 

  • Additional interest

It is a fact that purchasing a home will already mean that you will have monthly mortgage payments to go through. On top of this, since you will be borrowing your minimum down payment from your credit card, you would need to pay the amount equivalent to the down payment plus the interest that it will incur over time.

Credit card generally charges an interest rate of 20% which will be equal to thousands of dollars that you could have saved each month or year.

Ensuring your budget is in good shape is vital and is one of the many reasons you should discuss your financial options with one of our Calgary Mortgage partners, they can help you understand your financial obligations and navigate whether a short term wait in order to save more for your down payment is the best option or not. 

How to Secure a Zero Down Payment Mortgage

If you are still interested in pursuing a no down payment mortgage, here are some tips that will help you navigate it:

  • A strong credit score.

Credit scores can hold a lot of weight for lenders as it is something that they will look at before getting approved. It’s best to have credit score of more than 680. 

  • Sufficient and stable income

Aside from credit scores, lenders will be looking into how you will be able to pay them on a monthly basis. Providing a steady employment history as well as a sufficient income will get you one step higher on getting approved. 

  • Great Credit history

In line with your credit scores being more than the ideal amount of 680, it is also best to prove to your lenders that you are and timely payer. An almost perfect or perfect repayment history over the years will definitely help you in getting approved. 

  • A Lender who does flex down mortgages
    Flex down lenders are hard to come by and not all mortgage providers offer them. It will be best to reach out to one of our mortgage broker to get assistance in finding the best Flex down lender that will work with you. 
  • Strong debt ratio

Your debt ratios are calculated to let your lender know that you are more than capable in handling the monthly mortgage payment along with the payments you would be incurring from your borrowed down payment. 

Closing Remarks

Zero Down Payment mortgages should likely NOT be you and your families go-to plan when purchasing a home. This is a riskier maneuver, that’s a more expensive path and should be avoided when possible. Saving up for a home, looking for a cheaper home or even renting can be done as an alternative until you are ready to put down a minimum of 5% with cash. 

Consulting a licensed mortgage broker is the next best plan if you are leaning into going through a no down payment scheme to make sure that they are able to give you the best advice before moving forward with your decision.

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