Buying a house with little-to-no down payment.
Every Home loan requires a down payment whether it is coming from you or someone else. A down payment is the initial amount of money you are contributing to your house. Provincial housing regulations state that Albertans can put down as little as 5% however, if your down payment is less than 20%, you are required to purchase CMHC insurance.
What is default insurance?
CMHC insurance, also know as default insurance, allows the buyer to get a loan for up to 95% of the purchase price of the house with a reasonable rate.
On the downside, your mortgage lender will pay an insurance premium that will likely to be passed onto you. This cost is calculated as a percentage of the mortgage based on your down payment. You can pay this cost as a lump sum (otherwise known as a one-time payment) or add it onto an existing mortgage payment.
You may have the chance to receive up to a 25% refund off your premium if the insurance is going towards financing an energy-efficient Home.
How do I determine my minimum down payment amount?
The cost of your house will determine the minimum amount you need as a down payment.
- If the house costs $500,000 or less, you are required to pay a minimum down payment of 5%.
- If the house costs more than $500,000, you are required to pay a minimum of 5% down on the $500,000 and 10% down on the remainder.
- First Part of Purchase Price: $500,000 | Down Payment (%): 5% = $25,000
- Second Part of Purchase Price: $100,000 | Down Payment (%): 10% = $10,000
- Minimum Down Payments ($25,000) + ($10,000) = $35,000
Total Minimum Down Payment = $35,000
- If the house costs $1,000,000 or more, you are not required to purchase default insurance.
How do I buy a house with no down payment?
The ideal applicant has an exceptional income and a fantastic credit score. These two factors are needed in order for the Canada Mortgage and Housing Corporation (CMHC) to provide their program to you. The CMHC will find a borrowed source to provide your down payment. However, if you have the means to, you are able to open your own line of credit for the 5%.
Other than these two requirements, the "no down payment" mortgage has the same standards as a traditional mortgage including a selection to great rates and various ways to pay off your loan.
What will I have to pay?
- A higher premium which is a one-time charge of $250 for every $100,000 you borrow. This money is added to your loan.
- A significant amount of interest that is added onto the borrowed funds.
Are there any benefits?
One of the best and most noticeable benefits of the no down payment mortgage is the amount of time you are saving by not hunting down the money you need for the down payment. As a result, you will be able to live in your Home sooner than expected which is a huge benefit for expecting couples or families in need of a bigger space.
The other benefit to this loan is the amount of equity you will build on your own Home instead of burning money on a rented area.
Are you wanting to buy a house in Calgary or Edmonton with no down payment? We can make that a reality for you. Despite your current credit or income situation, HomeHow will answer your inquiry no matter what.
Connect with a mortgage specialist today about qualifying for the CMHC program.