Blog Post

Can I Get a Mortgage with No Downpayment?

Luisa Hough • Dec 22, 2020

The simple answer to this question is no. In order to secure mortgage financing in Canada you have to come up with at least a 5% downpayment.

Now, if you haven’t set aside the 5% for a downpayment in your savings account, that is okay. There are still a few ways to get you a mortgage.

Gifted Downpayment

With the cost of living going up all the time, there is no doubt that saving for a downpayment is harder now than it once was. If you have a family member who has money and is willing to help you buy a property, they can gift you the funds for your downpayment.

The gift has to come from an immediate family member who will sign a gift letter indicating there is no schedule of repayment and that the gift doesn’t have to be repaid. Proof that the money has been deposited to your account will be required through bank statements.

Gifted funds can make up part of or the entire amount of downpayment.

For example; you are purchasing a property for $300k, you have $10k saved up, your parents are able to gift you the remaining $5k to make up the total 5% downpayment.

Borrowed Downpayment

If you aren’t fortunate enough to have a family member who can gift you a downpayment but you have excellent credit and a high income compared to what you are borrowing, you might qualify to borrow your downpayment. This would be separate from and in addition to the mortgage funds.

It is possible to borrow your 5% downpayment as long as you include the payments in your debt service ratios.

The Canadian Mortgage and Housing Corporation (CMHC) has a program that allows you to use Non-Traditional Sources of Downpayment, which is described as “any source that is arm’s length to and not tied to the purchase and sale of the property, such as borrowed funds, 100% sweat equity, lender cash back incentives.” Reference: CMHC Quick Reference Guide.

For example; you are purchasing a property for $250k and you have a line of credit with a $20k limit but no outstanding balance. You could use that line of credit to borrow the $12,500 needed for the 5% downpayment assuming you can afford to carry the additional debt of the payments from the line of credit. Typically this is figured at 3% of the outstanding balance, in this case $375 per month.

RRSP Homes Buyers Plan

Okay, so you don’t have the money set aside in your savings, but you do have a nice little RRSP going. Assuming you are a first time home buyer, you can access the money from your RRSP Tax Free to use as a downpayment. You are able to access up to $25k individually or $50k as a couple and the money has to be paid back into your RRSPs over the next 15 years.

Below is the Home Buyer’s Plan (HBP) PDF document from Canada Revenue Agency for your reference.

Home Buyers Plan (HBP) – CRA

Regardless of how much money you have available to you at this time for a downpayment, if you are considering purchasing a property in the near future, please let me know.

It’s never too early to start the conversation about getting pre-approved for a mortgage.

Feel free to contact me anytime!

< Older Post Newer Post >

Getting a Mortgage While on Parental Leave

By Luisa Hough • 01 May, 2024

Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.

Bridge Financing and Deposit Lending

By Luisa Hough • 24 Apr, 2024

Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.

A First Home Savings Account (FHSA)

By Luisa Hough • 18 Apr, 2024

Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.