Is it possible to buy a home with Zero Down?
I am often asked by first time buyers or real estate investors if it is possible in today’s market to purchase real estate with no money down. With current bank legislation, a 5% down payment is required, but it is possible to become creative and put ‘zero down’ deals together. I have personally used several of these strategies and purchased many properties with none of my own capital – let me show you how it can be accomplished.
Joint Venture Partnerships - Most often seen in real estate investment scenarios, it is also possible to employ this strategy in this purchase of a principle residence. This is where a prospective purchaser without the required down payment and closing costs and an investor (friend, parent or 3rd party) come together for their mutual benefit. Most often, it works out that the investor puts up 100% of the down payment and closing costs, while the home owner lives in the property, pays all the bills and mortgage, looks after and maintains the property. When it’s time to sell the property, the investor receives 100% of his initial investment back, and the profits of the sale are split 50%/50%. The amount of initial investment, responsibilities and beneficial ownership may differ from deal to deal – but this is more common than many people believe, and may be a great way for a first time buyer to get into their own home and start building equity.
Vendor Financing – Sometimes, a seller will own the property free and clear, and be willing to draft up a ‘mortgage’ to a potential purchaser for even up to 100% of the purchase price. While rarer in residential properties, this strategy is quite common in larger multi family or commercial real estate.
Assumable Mortgages – You may be able to simply assume a Seller’s current mortgage and take over payments. While not all mortgages are assumable and you will likely need to qualify with that lender, this can be a solid strategy. Sellers will sometimes walk away from their equity if they have fallen behind on payments, don’t have time to sell and are worried about foreclosure and the ruining of their credit.
Scotia Bank’s Zero Down Program – In this scenario, the bank will essentially lend you the 5% required down payment. As a result, you will pay higher interest rates and be penalized if you want to sell your home before your mortgage term is up – but it can still be a great way to get into the housing market and start building equity sooner.
Rent-To-Own – While many deals are structured differently, typically in this scenario you will agree to ‘purchase’ a home from a Seller. In this agreement, you will pay higher than market rents, with the ‘option’ to purchase the home in the future, sometimes at a fixed amount. If you exercise this option to purchase, usually a certain percentage of your rental payments will go towards the down payment and this could be enough to qualify as a ‘zero down’ deal.
Agreement for Sale- This is quite rare, but essentially this is an agreement between a Buyer and a Seller that the Buyer will purchase the home from the Seller sometime in the future under a set of conditions to be negotiated. In this respect, typically the mortgage will remain in the Seller’s name until the option is exercised, and the new owner can usually move in and pay all the expenses – acting almost as a tenant. With this agreement, the Buyer can obtain the right to sell the property to another Buyer for more than the agreed price with the Seller and make a profit while never actually legally owning the property.
These strategies are the major ways to create a ‘zero down’ deal, and are used every day by Canadians. It is important to speak with an experienced professional before attempting to put a deal together as each scenario comes with its own advantages and flaws.
Contact Mitch today for additional information on this strategy!