Buy a house with no money down!
We feel intuitively that it can't possibly be true. But this year, watch for a fresh crop of promotions for mortgages available with little or no downpayment. Thanks to a recent policy change from Canada Mortgage and Housing (CMHC) - as well as some flexible new mortgages on the market - prospective homeowners have some innovative strategies at their disposal, all designed to help clear the path to home ownership.
First, let's look at the new policy from CMHC. Introduced in late February this year, the policy eases the downpayment requirements for mortgages -allowing for several flexible alternatives.
Traditionally, homebuyers needed to provide a minimum 5% downpayment from their own financial resources in order to purchase a home. The policy was an informal test of the savings discipline of the prospective homeowner and his or her ability to manage the financial responsibility of a mortgage. In the past few years, it has also been a test of nerves - as would-be homeowners watched mortgage rates fall and house prices climb while they scrambled to meet the CMHC downpayment requirement.
But effective March 1 of this year, the rules have changed. That 5% minimum downpayment can now come from any source: credit cards, personal loans, lines of credit, or even cash-back incentives offered by mortgage lenders.
The new policy is good news for would-be homebuyers with the cashflow to take on a mortgage - but who are still struggling to come up with a downpayment. Many young people, for example, have begun to enjoy good income - but their student loans have left them with non-existent savings.
If the new, flexible downpayment policy seems surprising, it's because our ideas about mortgages have been ingrained by many years of experience with traditional mortgage products in traditional institutions. But while banks still offer a wide-range of mortgage options to Canadians, they have been joined by other types of lending institutions, who have been developing innovative new mortgage choices for Canadian homebuyers - and responding to changing customer preferences and a shifting rate environment.
At Mortgage Intelligence - a leading mortgage firm - clients were enjoying a "no downpayment" mortgage option well before the new CMHC policy change this February. In fact, eligible Canadians homebuyers have been taking advantage of a ontario mortgage that allows them to borrow up to 7% more than the value of the home. The additional funds cover the higher fee for the mortgage, and even offer a 3% cash back that homeowners can use to purchase appliances, pay off other higher-interest debt or pay for closing costs.
The objective of both the new CMHC policy and the innovative new mortgages is the same: to help qualified Canadians step quickly into home ownership.
Every prospective homebuyer, of course, should discuss their situation with a mortgage professional - and make a realistic assessment of the risks and financial responsibilities of a mortgage. But we're experiencing strong housing prices and mortgage rates the lowest they've been in memory. And for Canadians with financial discipline and good income prospects, these new "no money down" options mean they won't have to stand on the sidelines of this historic opportunity!
