How Down Payment Loans Work

 
Is there a Zero Down Mortgage option still available in Canada? Sometimes, if you go to a private credit union or small firm that is not federally regulated. The Down Payment Loans we offer are “similar to” a zero down mortgage.

In November 2012, CMHC ruled out 100% mortgage financing. For this reason, most realtors and mortgage agents are initially curious as to how down payment loans can possibly be allowed. Yes, 100% financing is no longer available, the maximum LTV is 95%, and that is what is used for buyers who take advantage of a down payment loan of up to 5%. Such a loan is not a part of the LTV calculation.

CMHC (Canada Mortgage And Housing Association) says …

“For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted.”

One of the primary factors of being eligible is an EquiFax beacon score of 680 or higher. If you need help getting your score to that level, we will assist you for free.

Our preferred mortgage lender is a Top-5 Bank whose cash-back mortgage program is the bedrock which makes the program possible.

Also from CMHC’s site …

“You also need to think about closing costs (for example, legal and land transfer fees) equivalent to [about] 1.5% to 4% [it’s rarely higher than 2%] of the purchase price [plus adjustment costs]. Many first-time buyers are surprised by these costs.”

Our lender will not lend you closing costs, but instead will only lend you a portion of your down payment.

Here is what CMHC allows for down payment …

“Non-traditional sources of down payment include: Any source that is arm’s length to and not tied to the purchase or sale of the property, such as

  • borrowed funds,
  • gifts,
  • 100% sweat equity,
  • lender cash back incentives.”

If the home seller were to loan the down payment then the down payment loan would be “tied to the purchase of the property”, but that is not the case with our program – the funds are coming from a major bank as a 2-5 year loan, or from an external private investor who is to be payed off quickly with cash-back funds. Both possibilities fulfill the arms-length rule.

If you have any technical questions about how our down payment loan program works, email them to our Loan Team and we can have our top-5 bank mortgage professional partner talk with you about it.