Overview
No-down-payment mortgages in Canada—defined as home loans where you do not provide any of your own money upfront—are not directly available through traditional banks or federal lenders due to federal regulations. However, there are legitimate strategies that allow you to become a homeowner without having saved a down payment, primarily by borrowing the required funds from alternative sources.
How "No Down Payment" Mortgages Work in Canada
- True zero-down-payment mortgages (where you borrow 100% of the purchase price from one lender) were outlawed by Canadian Parliament in 2008 and are currently illegal.
- Alternative approach: You can still become a homeowner with “no down payment” by borrowing the minimum required down payment from a non-mortgage lender, such as through a personal loan, line of credit, or even a credit card.
- You must still provide the minimum down payment (5% of the first $500,000, 10% of any amount above that), but it can be borrowed, not saved.
Steps to a No-Down-Payment Purchase
- Secure a loan or line of credit for the minimum down payment amount.
- Use these borrowed funds to meet the lender’s down payment requirement.
- Obtain your mortgage from a traditional lender, using the borrowed funds as your down payment.
- Repay both the mortgage and the down payment loan over time.
"With a no-down-payment mortgage, you still require money for the minimum down payment; however, instead of using your savings, you’re using borrowed money."
Risks and Considerations
- Higher total debt: You will owe both your mortgage and the loan for your down payment, increasing your monthly obligations.
- Mortgage insurance: If your down payment is less than 20%, you must pay for mortgage default insurance (CMHC or private), adding to your costs.
- No equity cushion: Borrowing the down payment means starting with zero equity; any price drop could leave you owing more than the home is worth.
- Stricter qualification: Lenders will closely scrutinize your ability to service both debts; strong credit and stable income are essential.
Provincial Notes and Lender Options
- Major banks in Canada do not allow you to borrow the down payment from them directly if you are obtaining the mortgage through them.
- Alternative and private lenders may be more flexible but often charge higher rates for the down payment loan.
- Region-specific programs: Some mortgage professionals in Alberta and other provinces offer guidance on structuring these deals, but the rules are consistent nationwide since they’re set federally.
Typical Minimum Down Payment Requirements
| Home Price | Minimum Down Payment |
|---|
| Up to $500,000 | 5% of purchase price |
| $500,000–$999,999 | 5% of first $500,000 + 10% of remainder |
| $1,000,000 and above | 20% of purchase price |
First-Time Homebuyer Programs
- First-Time Home Buyer Incentive: Government shares in your home’s equity, but still requires a minimum down payment.
- Home Buyers’ Plan (HBP): Withdraw up to $35,000 from your RRSP for your down payment with no immediate tax penalty.
- Neither program eliminates the need for a down payment, but both can help source funds without new, high-interest debt.
Comparison: Down Payment Options
| Option | Description | Main Pros | Main Cons |
|---|
| Saved Down Payment | Use your own savings | No extra debt | Time required to save |
| Borrowed Down Payment | Use loan/credit for minimum down payment | Buy sooner, less waiting | Higher total debt payments |
| Government Programs | HBP, Incentive, grants | Lower effective cash needed | Eligibility restrictions |
Recommendations & Next Steps
- Carefully assess your financial stability before considering a borrowed down payment, as this increases your risk and monthly payments.
- Consult a mortgage professional to understand whether you qualify and to compare all available options, including alternative and private lenders.
- Compare rates from multiple lenders to ensure you’re getting the best mortgage and down payment loan terms.
- Visit theratefinder for a comprehensive platform to compare mortgage rates and begin a multi-step application process with leading Canadian lenders. Start your personalized application at [theratefinder.ca/onboarding] for tailored solutions.
Summary
While true zero-down-payment mortgages are not permitted in Canada, you can still achieve homeownership by borrowing the required down payment from sources outside your mortgage lender. This strategy carries higher financial risk and cost, but can be a solution for buyers who have strong credit and income but lack savings. Always evaluate your long-term affordability, and use expert resources like theratefinder to find the best options for your situation.