How To Get A Mortgage Without A Down Payment.
Sky-high rent and living expenses can make it challenging for some buyers to save up the standard down payment of 5% or more (20% if you want to avoid paying for mortgage loan insurance).
However, some lenders offer a flex down payment option allowing buyers to secure a mortgage without saving up for a down payment themselves.
Here’s what prospective buyers need to know about flex down programs:
- Not every lender offers flex down.
- You’ll need excellent credit and little to no debt.
- You’ll pay more for mortgage insurance.
- Lenders will factor in the alternate down payment source (adding it into your debt servicing).
While flex down payment options are a little more rigid than traditional mortgage offerings, they can help buyers get into a home sooner than if they waited to save up a down payment. For some people, that’s a trade-off they’re more than willing to make.
A Little History…
It’s actually a great question, and it was actually very, very common back in 2007. They were doing a lot of zero down payments, and it was a true zero down where if the purchase price of the property was $300,000, you could do it with zero down. So you had a mortgage of $300,000 plus your insurance fee, so it had to be CMHC insured or General if they were account a guarantee, but it would have been General with CMHC at the time.
You would add that (the insurance fee) on top of your purchase price, and you’d finance that whole amount. I believe they took it away in 2008 but there was still ways back then we were able to get a no down payment mortgage with what they called a free down payment program or a flexible down payment.
There was about five to six lenders or banks that would actually give you a cash back on your mortgage that you where allowed to use as your down payment. So they would give you a 5% cash back, and you could use that as a down payment of your mortgage.
The Reality of No Down Payment Mortgage NOW.
All that (the possibility of zero down payment mortgage) lasted only about six months or so. It’s gone. So there is no zero downs like that anymore, but I do still have a lender that will do the flex down payment program.
What is the Flex Down Payment Mortgage?
What the flex down payment program means is that you can use borrowed funds. So the strategy that I have been using with a few of my clients with a great deal of success is to get them a credit line. So if you have good enough credit that you would qualify for an unsecured credit line, you would be able to get that credit line and use those funds as your down payment effectively financing your down payment again.
In that $300,000 example again, as long as you qualify for around $15,000 unsecured credit line, we would use that for your down payment. It works very, very easily and I have done it successfully a few times now.
Just keep in mind that you still have to have some of your own savings set aside for closing costs which maybe that’s something else we can discuss at a different time buy you would want to have you know, say 1.50% of the purchase price saved up aside from having the funds available on your credit line just to cover off things like your legal fees, movers, inspectors, that kind of stuff, but essentially that’s how it works. It’s pretty easy.
Just one more thing. As we did see, the zero down went away, and the cash backs went away, and we are down to few lenders that will allow us to use your credit line in order to do this. I would suspect it’s not going to be around for very much longer.
Flex Down Mortgage:
Owner occupied (It must be your primary residence).
If it’s a duplex, you must reside on one side.
Minimum of 5% borrowed amount.
Maximum mortgage amount $950,000
You must have a 650 beacon score.
Gross Debt Servicing / Total Debt Services must be in proper order to qualify.
Down payment: Unsecured or Secured Line of Credit or Personal Lender Loan, payment must be included in TDS calculation.
1.5% closing cost can be borrowed under this program.
No previous bankruptcy.