# Buying a house without down payment



## ivansf (Mar 14, 2016)

Hey all. First post here but I've been reading this forum for a while.

I want to help my friends who are thinking of buying a place without a down payment, they tend to listen to random ads and trust salespeople, which led them to make some very bad decisions before. In the last 3 years they've bought 2 cars and fell into those pyramid scheme businesses without a single clue of what they were going to sell. This, being really tight on money.

Last time, they mentioned they want to buy a house/condo, though, they have nothing for a down payment and they barely make those car payments. They said they "heard" that you don't need a down payment and that made me freak out a bit.

I would like to explain exactly why it is a bad idea, I just don't know how it works. I assume they make you take a loan for the down payment.

Can anyone explain to me how does that work, and what can I suggest? I've told them to move to somewhere cheaper and save about $400 a month until they make enough for a downpayment. 

Thanks.


----------



## Mukhang pera (Feb 26, 2016)

Tell them to grow up.

The money has to come from somewhere. While no one can "make" anyone take a loan for a down payment, the money would have to be borrowed. No credible lender is likely to get involved in financing 100% or even want to be involved in 100% financing, even if said lender holds a first charge for less than the full value. The prospect of buying into a default and foreclosure scenario is too great.

The only 100% financing cases I have seen are where vendor and purchaser are related (including friends, etc.). The vendor knows the purchaser, is sympathetic to the inability to raise a down payment, and agrees to either take a note for the down payment or, more likely, to finance the whole thing. I say "more likely", because even if the vendor agrees to accept a note for, say, a down payment of 10%, the purchasers under such an arrangement are unlikely to qualify for anything close to conventional financing, even if the lender is kept in the dark about the source of the so-called down payment.

I would see no prospect for finding an arm's length "no down payment" purchase and sale unless something shoddy is going on.

You asked if someone can explain how a no down payment purchase works. I probably have not helped much. Maybe I am wrong and it's commonplace. Altogether outside my ken. Perhaps others here will have some brilliant insights as to how the impecunious can buy houses on The Bridle Path.


----------



## Just a Guy (Mar 27, 2012)

Well, you could do a vendor take back mortgage...where the seller agrees to finance a portion of the purchase price. The terms are usually unfavourable to the buyer (high interest rate) and you can't really get a good deal by negotiating a lower purchase price.

Not many sellers are interested in doing them either, so your selection is limited. 

That's about the only way I can think of to do it, even a lease to own property requires a downpayment.


----------



## coptzr (Jan 18, 2013)

Give them a wake-up call. Tell them to go to bank with you, set up automatic withdrawl each month of $2000 to locked account in their name. They will soon realize what it takes to pay for a house. When they begin to feel the struggle, then double it to $4000/month and tell them this is reality when all the bills start and kids begin to show up.


----------



## Mortgage u/w (Feb 6, 2014)

There are no homes that can be bought with zero down. It doesn't exist unless someone is up to no good. The minimum down payment ACROSS CANADA is 5%.
I've seen a few scams in my lifetime. I've seen a contractor produce a fake and higher purchase offer to present to the lender in order to obtain 100% financing. Some others will oblige you to deal with their mortgage broker who will sell you a cashback mortgage. I've also seen really crooked contractors who will falsify the whole purchase and mortgage process and use the buyer as a straw borrower in order to obtain multiple mortgages. Bottom line, buyer beware.


----------



## ivansf (Mar 14, 2016)

Thanks for the comments. I do understand they need to "grow up", and I've tried to tell them a few times. I just wanted to come with some real facts about it.

Mortgage u/w mentioned some good tactics:


Mortgage u/w said:


> I've seen a few scams in my lifetime. I've seen a contractor produce a fake and higher purchase offer to present to the lender in order to obtain 100% financing. Some others will oblige you to deal with their mortgage broker who will sell you a cashback mortgage. I've also seen really crooked contractors who will falsify the whole purchase and mortgage process and use the buyer as a straw borrower in order to obtain multiple mortgages. Bottom line, buyer beware.


I'm definitely using these.

Thanks!


----------



## Prospector (Jul 25, 2014)

Mortgage u/w said:


> There are no homes that can be bought with zero down. It doesn't exist unless someone is up to no good. The minimum down payment ACROSS CANADA is 5%.
> I've seen a few scams in my lifetime. I've seen a contractor produce a fake and higher purchase offer to present to the lender in order to obtain 100% financing. Some others will oblige you to deal with their mortgage broker who will sell you a cashback mortgage. I've also seen really crooked contractors who will falsify the whole purchase and mortgage process and use the buyer as a straw borrower in order to obtain multiple mortgages. Bottom line, buyer beware.


I scored one of these homes in Brantford in the late 90's. The builder (Schendanz) had done a "rent to own" program with the buyers allowing for a zero down mortgage, and then transferal to the buyers after a year of occupancy. The way the deal worked was that the builder held the rents in trust for a year, then applied them as a down payment against a house price that was raised by inflation. So the buyers signed a contract to buy a year after they moved in at an unknown price.

The rents were collected, and a year later, buyers were presented with a shiny new mortgage on a house they couldn't afford to keep. The entire neighbourhood went into default, houses were taken back by the banks and resold as power sale, and buyers like me walked in and bought them up at half price. Now those few who were keeping up on their payments were left with double the mortgage and no incentive to pay since they were so brutally upside down - this created a second wave of foreclosures. It also created a scenario where my neighbour repeatedly swore at me and called me a thief and other things for running down the prices in "his" neighbourhood. Uncomfortable.

That neighbourhood is only now selling for the list prices that the original buyers paid back in 1995. But at least the builder made his cash. The builder later dodged a fraud charge on the scam by claiming his staff had done the deals without him having any knowledge of it.

You may also want to point your friends to the recent article on mortgage fraud in the Globe - a bit of an eyeopener. Google this title: "How mortgage fraud is thriving in Canada's hot housing market - Globe and Mail" Sadly my postcount is too low to post a link.


----------



## Berubeland (Sep 6, 2009)

http://www.theglobeandmail.com/repo...ying-to-help-clients-qualify/article27051297/


----------



## Prospector (Jul 25, 2014)

Thanks for posting the link!


----------



## lknzy (Mar 21, 2016)

Zero down payment is available. But it is not for everyone. A typical scenario will be a MEDICAL RESIDENTS who has no enough saving but has a promising and decent future income. 
Basically, the candidate needs to have very strong cash flow. 



ivansf said:


> Hey all. First post here but I've been reading this forum for a while.
> 
> I want to help my friends who are thinking of buying a place without a down payment, they tend to listen to random ads and trust salespeople, which led them to make some very bad decisions before. In the last 3 years they've bought 2 cars and fell into those pyramid scheme businesses without a single clue of what they were going to sell. This, being really tight on money.
> 
> ...


----------



## Durise (May 16, 2016)

Such a silly thinking. You know there is no possibility to buy a house without down payment. Try to convince them.


----------



## Rusty O'Toole (Feb 1, 2012)

I have bought houses using entirely borrowed money, in other words no money down, the first time in 1972 before any of the "Nothing Down" books and courses was even written.

You must understand, by doing this you will have a higher monthly payment than if you had a down payment. In some cases it works. With the very low interest rates we have today it could work out but it sounds like your friends don't have the cash flow to carry a house payment of this kind. Unless they buy a cheap house outside the high priced districts like Toronto.


----------



## carverman (Nov 8, 2010)

ivansf said:


> Hey all. First post here but I've been reading this forum for a while.
> 
> I want to help my friends who are thinking of buying a place without a down payment, they tend to listen to random ads and trust salespeople, which led them to make some very bad decisions before. In the last 3 years they've bought 2 cars and fell into those pyramid scheme businesses without a single clue of what they were going to sell. This, being really tight on money.
> 
> ...


They will not qualify for a mortgage. Simple as that. Besides even with a small downpayment, the mortage will be increased by CMHC
mortgage insurance, adding X$ per month to the PIT (that's Principle,Interest and Taxes which the mortgage company will be collecting.


----------



## Mortgage u/w (Feb 6, 2014)

lknzy said:


> Zero down payment is available. But it is not for everyone. A typical scenario will be a MEDICAL RESIDENTS who has no enough saving but has a promising and decent future income.
> Basically, the candidate needs to have very strong cash flow.


Where exactly is this available? Unless you are dealing with a private lender (20% interest rate), there is no conventional lender who offers 100% financing, nowadays.


----------



## marina628 (Dec 14, 2010)

5% down then do cash back mortgage but you do need that 5% down in first place as they give you the cash back 1 day after closing.Definitely don't recommend it lol


----------



## dougboswell (Oct 25, 2010)

marina628 said:


> 5% down then do cash back mortgage but you do need that 5% down in first place as they give you the cash back 1 day after closing.Definitely don't recommend it lol


You are also paying a higher interest rate as that money is not free


----------



## carverman (Nov 8, 2010)

Mortgage u/w said:


> Where exactly is this available? Unless you are dealing with a private lender (20% interest rate), there is no conventional lender who offers 100% financing, nowadays.


Maybe a loan shark/mafia lenders will lend you the money at 50% interest..and if you don't pay them on time to what you have agreed to..
"we breaka yer legs!":biggrin:


----------

