How to Get a No Down Payment Mortgage
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How to Get a No Down Payment Mortgage

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By Urvee

A down payment is a huge part of the home buying process. It's often the biggest one-time purchase you'll ever make, plus it determines how much of a financial burden you'll have to carry for months (or even years) after you close on the home.

There are many factors to consider when determining the size of your down payment, including how much you have saved, how much of a loan you qualify for, your credit score, and your overall budget.

If it’s been your dream to purchase a home, you’ve likely been saving for a long time for that down payment. But what if you need that extra cash for something else, like an emergency? Do you have to restart again to save for another down payment? Maybe. But that’s not the only option.

Even when most things are going according to plan, there are certain events that we simply cannot plan for (think: a global pandemic). While it’s not advised, there is an alternative route that allows for a no-money-down mortgage in Ontario. Before learning more, make sure you’ve explored all of your other options for saving for a down payment.

What does a down payment cost in Ontario?

If you want to buy a home, you're going to have to come up with a substantial down payment. The down payment is the upfront cash you put towards the purchase of your home. The amount you're expected to put down varies slightly based on the market, but generally you want to put at least 20% down. This is the standard amount for most mortgage lenders.

The minimum down payment required by conventional lenders is now 5% of the purchase price for properties under $500,000. For properties between $500,000 and $1 million, 10% down is the minimum. Lenders also require "mortgage insurance" (MI) on mortgages with a high loan-to-value ratio (meaning in situations where the down payment is less than 20%). Mortgage insurance protects the lender in case you default by paying off your mortgage if you get behind or fall out of a contract.

The amount of money you put down on your home will have an impact on how much you can borrow and the interest rate you’re offered. The higher the amount of money you put down, the lower your monthly payments will be. 

For many people, the idea of saving 5% for a down payment proves challenging, which is why they might choose to rent. As an alternative route, there is a way to get around the down payment.

Is it possible to get a no down payment mortgage in Ontario?

Many people in Ontario want to know if it’s even possible to purchase a home without a down payment. Technically, it is, but only by borrowing the entire amount required for the down payment. By Canadian law, everyone is required to make a down payment. The only way to not use your own money for a down payment is by borrowing it. 

Of course, this means that the borrower will be in even more debt. It’s possible to collect a down payment from a line of credit, a loan, or friends and family. The most popular option to get the money required for the down payment is with a Flex Down.

Should I get a no down payment mortgage in Ontario?

A no down payment mortgage in Ontario will incur significant charges that could be avoided with your own down payment. Borrowing money for a down payment will only increase your debt. However, it might be a viable option if you have a steady income and can support this type of expense.

As this is a major decision, it’s important to assess the pros and cons before deciding. If you can wait to purchase a home and save up for a down payment, that’s the more advisable option.

No Down Payment Mortgage

Pros

  • No more renting: Although you will acquire more debt, when you rent your money does not go towards owning a home. You will still be building equity by purchasing a home this way.
  • Increase your net worth: Once you start owning assets, your equity grows. Similar to acquiring a loan for a car, these assets help to increase your net worth.
  • Avoid default mortgage insurance: If you borrow the whole amount for a down payment, you don’t have to pay for default mortgage insurance.

Cons

  • Additional interest: Interest rates will be higher because of the more significant amount of money borrowed. 
  • Debt: The no down payment mortgage route will incur more debt. 
  • No home equity: Without putting your own money down, you will not have home equity. A down payment represents a small percentage of the total property, but that portion is still owned by you.

Other considerations

A lot of questions come up when you’re thinking about buying a home. How do you find properties that are within your budget? What’s a good down payment? How much should you pay for a house? Is it even worth buying a house at all? The answer to all of these questions is a resounding “it depends.” It depends on the type of property you're buying. It depends on the location. It depends on the type of mortgage you want. It depends on a tons of other things.

Whether you're looking to buy your first place or your fifteenth, you should be prepared to hand over some money upfront. Figuring out how much money you need to put down is a no-brainer. It just makes sense to start there, and then figure out how much you can afford to save. If you're buying a home, you might have a down payment requirement, and that'll be the hardest part.

If you’re trying to find a way around the down payment, then it might not be a good idea to buy right now. Save your pennies and wait until you’re ready.

Properly is a Canadian tech-enabled real estate brokerage transforming the home buying and selling experience as the only service in Canada that helps homeowners to buy before they sell.

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