Last updated June 24 2022
A program for home buyers who have established an excellent credit history but have not yet saved the required down payment or have chosen to use their savings to build assets in different ways.
Borrowed Down Payment Mortgage Program
Yes, we understand that sometimes saving the required down payment for a new home can be challenging. The good news is that through some of our mortgage lending partners and insurers, it is possible to purchase a home using none of your own savings. The Borrowed Down Payment mortgage program helps make it possible for you to start building equity in your own home without having to save for years.
The program has strict qualifying criteria and works when you can meet the following conditions:
- All applicants must have a credit score of 680 or higher, 750 recommended (how to access your credit report)
- Your incomes are stable and - if you are not on salary or guaranteed hours - you have been with the same employer(s) for at least 2 years
- You can find a house that will cost no more than ~4X your gross annual household taxable income (which can include CCTBs and income from an immediate family member co-signor)
- Your target house price is about $500K or less
If you don't meet the criteria you will have to come up with your down payment another way, perhaps gifted from a parent, sell something, or good old fashioned savings.
How the Borrowed Down Payment Program Works
Basically, the Borrowed Down Payment Mortgage Program permits you to use mortgage money up to 95% of the home value from a traditional mortgage lender, and you need to borrow the remaining down payment as a personal loan from a different source. Together, both loans provide you 100% of the purchase price.
Example for a $400,000 property purchase. You borrow $380,000 from a mortgage lender and get the other $20,000 from your personal line of credit. The LOC must be approved before you make an offer to purchase.
When combined, you have enough to fund the entire purchase price and in essence create a No Down Payment Mortgage. We can help guide you through the process and to see if you qualify.
VIDEO: How to Create a Zero Down Mortgage
To put this program together successfully, you have to put 3 things in place
- before you even start looking for a home, first get a personal loan or personal line of credit from your bank for your down payment funds,
- then get pre-approved with us where we locate a lender for you that will give you a mortgage using borrowed down payment, and
- the lender has to be set up to work with Sagen Canada (similar to CMHC), who will provide mortgage insurance that the lender requires to give you a low down payment mortgage. Sagen provides the Borrowed Down Payment Insurance Program to the mortgage lender, and it is their criteria that we have to meet to make this work for you.
Here are the requirements to be approved for the program:
- You should have very good credit, which generally means a score of 750.
- You must have stable income, with at least 2 years with your current employer(s) if your base hours or incomes are not guaranteed.
- Your income must be sufficient to pay the new house mortgage, and the new down payment loan per industry standard debt-to-income ratios, which generally means low or no consumer debts.
- You must qualify for and get a line of credit or loan first for the down payment (this is the first step, talk to your bank .. but only after you talk to us so that you frame the request correctly)
- Generally, your target house price should not exceed ~4 times your household taxable income (T4s) assuming your consumer debts are low to moderate. I can be more precise when we talk. Canada Child Benefit can count to household income too.
- Generally, purchasing a house under $500K works best, which I can explain the reasons if need be, but there is some wiggle room here.
- Please note, this program is simply not available for people with any credit issues, high consumer debt loads, or unstable/new income.
No Down Payment Mortgage Example
Here is an example for what it would take to purchase a home priced at $600,000.
Per standard mortgage qualifying rules, for a $500K purchase you would require 5% down payment ($25,000) plus an additional ~1% ($5,000) or more for the closing costs you will have (lawyer, property inspection, applicable taxes, utility connections, etc.). So you need a mortgage for $475,000 and a down payment loan for $25,000. Generally, you must have at least the closing costs in savings.
Here are what the approximate numbers might look like:
$2885/mo - your monthly mortgage payment (~a third of this is mortgage balance reduction) (ex 4.99% interest, 25 year amortization)
$ 500/mo - the borrowed down payment loan repayment (ex. 7.5% Interest, 5yr term)
$ 300/mo - property taxes to the town or city
$ 200/mo - fire/property insurance
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$3885/mo - TOTAL COST OF OWNING YOUR OWN HOME - COMPARE THAT TO PAYING RENT
Guideline Income: to qualify for this mortgage, your household taxable income should be about 1/4th the house price or more. $500K/4 = $125K/yr as a guideline income. In addition your jobs have to be stable and very good credit.
Putting it all Together - Whether Borrowed Down or Otherwise
Setting a goal to get your own home is a big deal and an exciting journey. It starts with a dream, followed by taking some initial "discovery" and "exploration" steps. At some point you get the first sense that "hey, this may be possible!" Before you know it you are looking at homes, then one day ... it's moving day and a place to call your own. I'm happy to be part of your journey....
Understanding mortgage finance is a key part in your plan and journey. To get a home, you need to be able to qualify for a mortgage. Your income needs to be stable and sufficient to pay your existing debts and the new mortgage, your credit profile has to show that when someone extends you credit that you pay them back on time and as agreed, and you have to have the required minimum down-payment, and - understandably - that can be hard to save in today's environment. For those with strong employment and strong credit, there may be a short cut for down payment, which we discussed above, called the Borrowed Down Payment Program, and there are other ways too.
VIDEO: How to Create a No Down Payment Mortgage
Warning - all of the criteria above are requirements for the program, so please double check. If you can meet all 6, please complete a profile and we'd be happy to provide an assessment upon receiving it.
