From time to time I meet people who are anxious to buy a home, but do not have the requisite five percent down payment saved up. They are frustrated by being on the sidelines watching everyone else grow their home equity. The solution might be a borrowed down payment.
When you buy a home, you are expected to have access to a down payment towards the overall purchase price of the home. Most lenders do not want the down payment to be borrowed.
It normally has to be your own money – either money you have saved up, or money given (not loaned) to you by a relative.
With all the recent changes to mortgage rules, is it still possible to buy a home with no down payment? The answer is YES. Somebody has to come up with at least a 5% down payment, but it does not have to be you the borrower.
You could in fact borrow your down payment! Mortgage brokers have access to a few lenders who are okay with this. It’s called a flexible down payment mortgage. Most mortgage insurers offer this approach. Here is how Genworth does it. (Genworth, CMHC and Canada Guaranty are the three mortgage default insurance providers in Canada)
Normally the institution lending you the funds for the mortgage does not offer down payment solutions, rather it is up to you to source these, but a mortgage broker can often help you find cheap money.
You do have to be careful that the new debt you take on does not adversely affect your debt service ratios to the point where you may no longer qualify for a mortgage. If it is from revolving credit, practically all lenders will impute a monthly payment of three percent of the balance, regardless of the actual arrangement you have.
The key is the loan – or line of credit or low rate credit card – must be paid back, and a payment on the borrowed funds is taken into consideration when qualifying for the mortgage and calculating your debt service ratios.
Typically, an applicant has to be a super strong candidate overall. Great income and employment, as well as a stellar credit history are key factors for a borrowed down payment
If the bank doesn’t want to speak with you… if alternate lenders are not interested… if all seems hopeless but selling your home isn’t an option… a private mortgage may be your only hope