The simple answer to this question is no. To secure mortgage financing in Canada, you must come up with at least a five per cent down payment.
If you haven’t set aside the five per cent for a down payment in your savings account, that is okay. There are still a few ways to get yourself a mortgage.
Gifted down payment
With the cost of living going up, saving for a down payment 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 down payment.
The gift has to come from an immediate family member. They will sign a gift letter indicating there is no schedule of repayment. Additionally, they will have to state that the gift doesn’t have to be repaid. You can use bank statements to prove when the gifted funds are deposited to your account.
Gifted funds can make up part of or the entire amount of down payment. For example: You are purchasing a property for $300k and you have $10k saved up. Here, your parents can gift you the remaining $5k to make up the total five per cent down payment.
Borrowed down payment
If you aren’t fortunate enough to have a family member who can gift you a down payment, you still have options. If you have excellent credit and a high income compared to what you are borrowing, you might qualify to borrow your down payment. This would be separate from and in addition to the mortgage funds.
It is possible to borrow your five per cent down payment. You must 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 Down payment, 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 five per cent down payment, assuming you can afford to carry the additional debt of the payments from the line of credit. Typically this is figured at three per cent of the outstanding balance, in this case $375 per month.
RRSP Homes Buyers Plan
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 down payment. You are able to access up to $25k individually or $50k as a couple. 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.
Regardless of how much money you have available to you at this time for a down payment, 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.