Buy a house with no down payment – Buying a home is a dream for many Canadians, but the biggest challenge often comes in the form of the down payment. With rising real estate prices, saving up tens of thousands of dollars for a down payment can be daunting. Fortunately, there are ways to buy a house in Canada without a traditional down payment.
In this comprehensive guide, we’ll explore different strategies, government programs, and alternative financing options that can help you purchase a home with little to no money upfront.
Understanding the Down Payment Requirements in Canada
In Canada, a down payment is a percentage of the purchase price that a buyer must pay upfront. The minimum requirements set by the federal government are:
5% down payment for homes priced up to $500,000
10% down payment on the portion of the home price between $500,000 and $999,999
20% down payment for homes priced at $1 million or more (to avoid mortgage default insurance)
While these are the standard requirements, some strategies allow buyers to work around them.
1. Borrowing the Down Payment
One way to buy a house with no money down is to borrow the down payment. Lenders may allow you to use funds from:
a. A Personal Loan or Line of Credit
Some buyers take out a personal loan or line of credit to cover the down payment. This approach works best if:
You have a stable income to cover both the mortgage and loan payments.
Your credit score is strong enough to qualify for favorable loan terms.
You find a lender that allows borrowed down payments.
b. Home Equity Line of Credit (HELOC) from a Co-Signer
If a close family member or friend has a property with equity, they can take out a HELOC and lend you the funds.
c. Credit Cards (Not Recommended)
Some people use cash advances from credit cards, but this is risky due to high-interest rates.
2. Government Programs for First-Time Buyers
The Canadian government offers several programs to help buyers enter the housing market with little savings.
a. First-Time Home Buyer Incentive
This program allows eligible buyers to receive 5% or 10% of a home’s purchase price as a shared-equity loan, reducing mortgage payments without increasing debt.
b. RRSP Home Buyers’ Plan (HBP)
First-time buyers can withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) tax-free for a down payment. The funds must be repaid over 15 years.
c. GST/HST New Housing Rebate
If you’re buying a newly built home, you may qualify for a rebate on the GST or HST portion of the purchase price.
3. Zero-Down Payment Mortgage Programs
Some lenders and financial institutions offer zero-down mortgages, meaning they finance 100% of the home’s purchase price. These options include:
a. Cash-Back Mortgages
Certain lenders offer a cash-back mortgage, where they provide a percentage of the loan amount (e.g., 5%) after closing, which can be used for the down payment. However, these mortgages typically come with higher interest rates.
b. Alternative Mortgage Lenders (B-Lenders and Private Lenders)
If you don’t qualify with a traditional bank, B-lenders or private lenders may offer a zero-down mortgage at higher interest rates and fees.
4. Gifted Down Payments
Many lenders allow homebuyers to use gifted funds from immediate family members as a down payment. A gift letter is required to confirm that the money is a gift, not a loan.
Who Can Gift the Down Payment?
Parents
Grandparents
Siblings (less common)
5. Rent-to-Own Programs
A rent-to-own agreement allows tenants to rent a home with the option to buy it later. A portion of the rent payments goes toward the future down payment. This option is useful if you need time to save while securing a property at today’s price.
How It Works:
You sign an agreement with the homeowner.
You pay a slightly higher rent, with a portion set aside for the down payment.
After a few years, you can purchase the home at a pre-agreed price.
6. Co-Buying a Home
Partnering with a family member, friend, or investor to purchase a home can reduce the financial burden.
Benefits:
Shared down payment and mortgage payments
Easier approval for financing
Access to larger properties
Challenges:
Legal agreements are necessary to outline ownership and exit strategies.
7. Employer Assistance Programs
Some employers, especially in high-demand industries, offer homebuyer assistance programs. These may include:
Grants for down payments
Employer-backed loans
Relocation assistance packages
8. Buying in a Cheaper Market
If affordability is an issue, consider purchasing in a smaller town or less competitive market. Many rural areas and small cities offer homes at lower prices, reducing the required down payment.
9. Creative Financing Options
a. Vendor Take-Back Mortgage (VTB)
A vendor take-back mortgage is when the seller finances part of the purchase price. The buyer makes payments to the seller instead of a bank.
b. Joint Ventures with Real Estate Investors
If you find an investor willing to fund the down payment in exchange for shared profits, this can be a viable option.
c. Lease Options
Similar to rent-to-own, lease options allow buyers to lease a property with an agreement to purchase it later, often with part of the rent going toward the down payment.
Key Considerations Before Buying with No Down Payment
1. Higher Interest Rates
Lenders may charge higher interest rates for zero-down payment mortgages to offset the risk.
2. Mortgage Insurance Costs
If your down payment is less than 20%, you must pay mortgage default insurance through CMHC, Genworth, or Canada Guaranty.
3. Debt-to-Income Ratio
Lenders assess your financial situation carefully. If you have high debt, getting approval may be difficult.
4. Hidden Costs
Closing costs (legal fees, land transfer tax, home inspection)
Moving expenses
Property taxes and maintenance
Final Thoughts
Buying a home with no down payment is challenging but possible with the right approach. Whether you borrow funds, use government programs, or explore alternative financing, careful planning is essential.
Before committing, consult with a mortgage broker or financial advisor to assess your best options. A well-structured strategy can help you achieve homeownership sooner than expected.