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Toronto mortgage with no down payment is no problem

borrowed down paymentToronto mortgage with no down payment is no problem

It seems the barriers to entry into Toronto real estate ownership keep getting higher and higher. In recent months we have seen government intervention in mortgage lender guidelines; increased default insurance (CMHC, Genworth or Canada Guaranty) premiums, and a white hot market pushing home prices to the stratosphere.

Many first time buyers worry they will never have enough down payment to get in and become home owners. But it does not have to be that way. A borrowed down payment can get the job done.

We quite often help such buyers get into their first home. We arrange extremely cheap credit facilities to come up with a source of the down payment. Anywhere from 0% to 1.99% annual interest rate for up to one year.

Related article: Five reasons the Greater Toronto Area real estate market is different – no bubble here

Here is the ideal buyer profile:

  • Very good employment and income – usually there will be two applicants. It could be a couple, or simply two resourceful individuals who figure it’s better to partner home ownership than to rent forever.
  • Excellent credit histories – A score of at least 700 with Equifax, Canada’s largest credit reporting bureau. Ideally I like to see 740 or higher.
  • The applicants should at least have some savings – enough to cover closing costs anyway. Mortgage lenders apply a rule that you should have at least 1.5% of the purchase price in liquid assets. That can be bank accounts, TFSA or even RRSP’s. If your money is under the mattress, get it into a bank as soon as possible if you want it to count.

This week we are working with a couple who hit all the right buttons. They are shopping for a nice town home or semi detached in the areas of Vaughan, North York, Richmond Hill or even Markham. Their combined salaries are over $170,000 so they are very comfortable with a large mortgage payment.

flex down mortgageTheir real estate agent was thrilled to hear they can buy a home costing as much as $800,000, even though they only have saved up $25,000.

In fact, it could have been more, but they have a car lease and an RRSP loan which reduce the maximum possible mortgage a bit.

One important point worth noting – the current insurance premium for mortgages with a borrowed down payment (5 to 10% down) is 3.85% – a touch higher than the normal 3.6%.

But after March 16, 2017 the premium will increase to 4.5%. So if you are like this couple and thinking of buying this spring, you can save thousands of dollars by acting fast. You just need your application submitted before midnight March 16th – even if your purchase is closing mid July! See this article from the always excellent Rob McLister and Canadian Mortgage Trends.

With all the changes to mortgage lender and insurer guidelines the past few months, there is quite a bit of uncertainty as to what will work and what fails in the application process. Make sure you are dealing with professionals who are truly on top of their game. It can make all the difference in the world.

Related information: The Genworth Borrowed Down Payment Program

Related article: First time buyers can borrow down payment

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