Can You Buy a Home for No Money Down?

Get a home for nothing down?! We’ve all seen the ads online for no money down home mortgages (and if you haven’t Google hasn’t got its hooks into you just yet!), but it’s a lie. You’re going to have to put SOMETHING down to get a home, but it won’t be a lot. With high ratio mortgages and a little private mortgage insurance you’ll be able to get a new home with as little as 5% down. We don’t recommend going with such a low down payment, and here we’ll talk about your options and why you’ll want to put a little more in the kitty when you get started.

Why Can’t You Get a Zero Down Mortgage?

Remember that big housing crash that happened down south a few years back? The one that devastated the global economy and sent the entire world into a tailspin? Yeah, that was because of no money down or “subprime” mortgages.

Subprime mortgages are in and of themselves not a terrible thing, but they’re risky for lenders. Another name for this kind of mortgage was a “NINJA Loan” – no income, no job, no assets. You (the bank) are basically promising an entire house for no money down – in the hopes that in 5 years this person is going to magically find the money to buy the house. How do you mitigate the risk?

You securitize the debt. You bundle it up as “good” debt for investors, retirement pools and mutual funds to buy up hoping years from now will turn a profit and support them in their old age. This kind of debt is great for lenders until people stop paying their minimum monthly payment.

But people stopped paying the minimum monthly payment and the whole house of cards came crashing down on the Americans heads. Canada didn’t securitize debt in the same way, which left us with a pretty good economy. That’s why we have to put down money when we buy a home.

How Much Can You Put Down?

To get a high ratio mortgage you’ll need to put down at least 5%, but you want to get this number as high as you can. Even if it’s just 6% or 7% that’s months taken off the time and money you’ll have to spend on private mortgage insurance. Some borrowers go with a piggy back mortgage to save on fees and bring down their PMI amount, but this will depend on how much you have as a down payment and how your mortgage is structured.

Does Your Lender Offer These Kind of Mortgages?

Some lenders offer high ratio mortgages, but it never hurts to look at your options. Talking with a Canada mortgage broker will help you find out if you can get a better deal and if now’s really the right time to borrow. You want to see as many offers from lenders as possible before you sign anything.

Think of it as speed dating – you wouldn’t get married after one night out would you (and if you would, you shouldn’t! Make them work for it!)? You want as many offers from as many sources before you sign on that dotted line.

Get Pre-Approved

Once you find lenders with good offers, get pre-approved before you start shopping for a home. This way you’ll know what your budget is and how much you have to spend. Work with a Canada mortgage broker to make sure that this approval amount is really the best you can do!

Danny Papadopoulos is an experienced agent of Mortgage Central and an avid blogger for Homebase Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgages for the self-employed, home equity loans and lines of credit, debt consolidation, private mortgage and second mortgage lending. You can visit their website at http://www.homebasemortgages.ca/