How could you possibly buy a home without having any down payment? It’s honestly something that sounds too good to be true because we have always been under the belief that you need at least a 5% down payment to purchase a home. Well….you do need 5% down to purchase a home, but it doesn’t necessarily mean that it has to come out of your pocket!
What most first-time homebuyers are aware of is that they can withdraw money from their RRSPs and use it towards the down payment on their home. What they don’t know about, is that you can BORROW up to $35,000 from a bank to contribute towards your RRSP’S and then withdraw that same money and use it towards a down payment on your home!
Does it still sound too good to be true? Yeah, it probably does, so you can watch the video below to get the Coles Notes version of how you can buy a home with no down payment and then continue reading below the video if you want to see all the ins and outs before booking a consultation with us.
Firstly, there are a few criteria that you need to meet in order to qualify for the program that allows you to purchase a home without having a down payment. They are:
- You and anyone else purchasing the home MUST be a first-time buyer
- You need to have a credit score of 680 or more.
- You would need to be able to have an income level that allows you to qualify for a mortgage at the price point you want to purchase.
- You would need to have earned a total of $160,000 in income during your career.
- You would need to be able to wait 120 days to close on the purchase of a home
You and anyone else purchasing the home MUST be a first-time buyer: Only first-time homebuyers are able to withdraw money from their RRSP’s and put it towards a down payment on their home. This includes you or any other person going on the title to the property.
You need a credit score of 680 or more: Remember that the purpose of this program is so you can purchase a home. If you do not have a credit score that would be able to allow you to qualify for a mortgage, then it wouldn’t make sense for you.
You would need to be able to have an income level that allows you to qualify for a mortgage at the price point you want to purchase: If your income level doesn’t qualify you for a home that you would like to purchase, then it would be best to hold off. You can only use this program once, and if you aren’t able to see homes you like in your budget, then you are better to hold off until your situation gets a little better.
You would need to have earned a total of $160,000 in income during your career: In order for you to be able to contribute towards your RRSP’s, you would need to have earned money in the past. Assuming you have never contributed to your RRSP’S in the past, if you have earned $160,000 in your lifetime, then you would have roughly $30,000 in contribution room available, which would allow you to take advantage of the RRSP loan.
You would need to be able to wait 120 days to close on the purchase of a home: When you are withdrawing money from your RRSP account towards the purchase of your first home, the funds need to be in the account for at least 90 days. Given that you would be borrowing the money to contribute, you would have to wait for at least those 90 days in order to withdraw the funds. Factor in setting the program up, and searching for a home as well, you would be looking at roughly 120 days or 4 months before you can actually move into a new home.
We completely understand that buying a home with no money down is an enticing proposition to just about any first-time homebuyer, but we genuinely do not want to give people false hope in thinking that they can automatically qualify for the program. If you don’t meet all of the criteria above, there is a high likelihood that you would not be able to qualify for this program.
If you do meet all of the criteria above, then you likely would qualify to purchase a home with no down payment. While you may be a little less skeptical about the program at this point, you might be wondering exactly how a bank would just give you money for the purchase of your home?
For lack of better words, let’s call it an extended I.O.U. While you are able to withdraw funds from your RRSP towards the down payment of your first home, you also have to put the funds back into your RRSP account within 15 years, or else you can face a penalty. So whatever money you do withdraw, keep in mind it will have to go back into the account.
Secondly, you are borrowing the money from a bank to contribute to the RRSP in the first place. Banks provide this program as a means to have consumers bring all of their financial portfolios to their bank, and providing loans for RRSPs is a great way to catch a younger audience that is just starting out in their careers and investing for the future.
Banks will charge an interest rate on this loan, commonly anywhere from 3%-5%. While that number might seem a little high to someone who is only looking to invest in their RRSP, it is actually exceptionally low for someone who would be using the money to purchase a home with no downpayment upfront. If you tried to find a loan for a downpayment through other means, you would be looking at interest rates of 12% or more…and that’s if you would even find a lender willing to do it for you!
There is also a cherry on top of it all. When you contribute to your RRSPs, that contribution amount is deducted from your taxable income for the calendar year. So, not only are you able to purchase a house with no down payment of your own, you would actually get a tax rebate from the government because you made a contribution to your RRSP account.
At this point, we hope you realize that you actually can purchase a home with no down payment. Yes, it does take some creativity, but it is without question very possible and we have done it with numerous first-time buyers. By utilizing the unused contribution room in your RRSPs, you are able to essentially purchase a home without having a down payment.
It gets a little better…..if you are purchasing with someone else, they would also qualify for the $35,000 RRSP loan, so pending you had the income to qualify for a higher mortgage, you would be able to have a total of $70,000 to use as a down payment towards a house, which could get you into a $900,000 price range!
The tools and information above are available to any first-time homebuyer that is looking to purchase a house with no down payment. While we have been able to help many of our first-time homebuyers purchase a home with no down payment, we also know that it takes a fair bit of work to set up. We have established great relationships with several mortgage brokers and banks to put this all together, and we trust and respect the relationships we have built with these industry partners.
If you are interested in learning more about this program and would like to purchase a home in the near future and the only thing preventing you from being able to do it is having a down payment, we are here to help.
You can book a consultation directly with us by clicking here and one of our team members will connect with you as soon as possible.