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No Down Payment Mortgages: They Do Exist!

down payment

Not long ago, no down payment mortgages were the preferred financing option for many new and first time homeowners. While not as popular as they once were, this type of mortgage can still be found — provided borrowers know where to look and meet certain qualifications.

 

Also known as 100 percent financing, as the entire price of a home is borrowed, no down payment mortgages are processed much like ordinary mortgages with down payments. Prospective homeowners need to present evidence of their income and assets, and their credit report is subject to review before they can be approved.

 

Buy Homes Faster

Obviously, the main advantage to borrowers is that no down payment is required in this type of arrangement. Buyers who don’t have to make a down payment can enter the home market more quickly than those who must save the 5 to 20 percent typically required with a standard mortgage. A no money down mortgage also offers more financial flexibility. Homeowners can cover closing costs and moving expenses, or even pay down other debts, with money that otherwise would have gone toward a down payment.

 

Make Higher Payments

No money down mortgages are not without risk. Less money down translates to higher monthly payments, and building equity in this situation hinges even more heavily on appreciation of the home. What’s more, buyers who obtain 100 percent financing are required to pay a higher mortgage rate (to cover the additional risk to the lender). The cost of the mortgage insurance (CMHC, Genworth, Canada Guaranty) is added to the monthly amount due, paid upfront, or both usually based as if you were putting 5% down.

 

Qualifying

There are currently very little 100 percent mortgages available through major and not so major banks, trust companies, private lenders and others. Currently no public or private mortgage insurers in the Canada are insuring 100 percent mortgages.

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