Who doesn’t like to have their own home? Everyone dreams of it and even saves to buy one. But, people still struggle to purchase that dream house due to numerous reasons. The most common ones are the struggles with the down payment.
Down payments, everywhere, are calculated based on the properties’ purchase price, only the percentage varies. Similarly, in Canada, different percentages are to be made as down payment while buying a house. For instance, to get a property for 500,000 or below, the down payment would be 5%, for a property between 500,000 to 999,999, the down payment would be 10%, and for a property of $1 million and above, the down payment would be 20%.
Unfortunately, many people even struggle to gather the minimum amount of 5% and thus prefer to rent a property. As a solution, Canada introduced no down payment mortgage to help them buy or own their first property without much hassle.
Understanding No Down Payment Mortgage
The first thing is to understand what exactly is ‘No Down Payment Mortgage.’ If you think that you would not need to pay the down payment while buying your home, then you are wrong. Whenever you buy a house or property, you must make the down payment. The twist is that you do not make the down payment with ‘Your’ money. You borrow it.
According to the law, when you buy a house or property in Canada, you need to make the down payment. However, it is not mentioned anywhere that it must be from your pocket. Thus, borrowing it through a bank as a loan, or a line of credit, or even using your credit card. Whichever option suits you the best, you can borrow the money from.
Let’s Go Through its Positives and Negatives
It may sound confusing yet interesting, but it still has positives and negatives (pros and cons). Furthermore, with all the money and borrowing involved, it will surely affect your financial health. Thus, it is, in every way, relevant to first know the positives and negatives of no down payment mortgage and then make your decision to go with it or not.
Expanding the Net Worth
When you obtain a loan or mortgage for a car or house, you add on the assets which eventually increase your net worth. This means, whenever you pay for a loan, you gradually increase your wealth.
Having your own home is always better than renting one. Whenever you pay your rent, you do not contribute anything towards buying ‘Your’ home. Thus, when you purchase your home through a mortgage or loan, you free yourself from those monthly rent bills.
Additional Interest Rates
The interest rates are higher when you borrow a good amount of money. This means your return amount will always be greater than the mortgage or loan amount, be it 5% or 20%.
This isn’t hidden. When you borrow an amount, you get yourself under more debt. However, if this is the only debt under your name, it is not that bad, and you can repay it if you have a good job with a nice monthly salary. But, if you have other debts under your name, then this may become a burden to you.
Getting to know what no down payment mortgage is and what are its pros and cons, you will be able to decide on going for it or not. Your decision must be based on your needs, requirements, and abilities. It is always recommended to know your options thoroughly and then make a sound and fair decision.
However, if you go with the no down payment mortgage, then there are a few more requirements that must be fulfilled.
- When you borrow an amount for the down payment, make sure that the lender has no relation to the property.
- Have a credit score of 650 or more with a good credit history.
- An important one. You must have a stable job with a good salary to have the ability to repay the loan on time. Your salary will help the lender trust you with the repayment.
Thus, if this article answers all your queries regarding buying a home with less budget for the down payment, and it fulfills your requirements as well, then consider this option and start looking for your dream house now.