One of the biggest challenges most first-time home buyers in Barrie run into is saving a down payment.  We are fortunate to have government backed default insurance in Canada.  These programs provide security for potential lenders, allowing them to only require a 5% down payment from well-qualified applicants.  While 5% does not seem like much to a lender, but for a young family or newly married couple this is usually a tremendous feat.

Although we’ve been through a few years of increasing mortgage regulations (decreased amortization, stricter debt servicing guidelines, etc.), there are still some options available to first-time home buyers who are struggling to save for their big purchase.

Cash Back Mortgage

New regulations brought in by the government in July 2012 blocked federally regulated lenders (banks & trust companies) from offering “no money down” or “cash back” mortgages (to be used as a down payment).  These new rules do not impact provincially regulated credit unions.  These institutions will still approve this type of mortgage for young individuals who have a solid career & good credit but lack the means to quickly accumulate a down payment.  While this type of mortgage comes with a rate premium, with rates remaining low this strategy could be beneficial to the right applicant(s).

Gifted Down Payment

For those lucky enough, family can be a great source for a down payment.  Recent mortgage regulations have left this option open, allowing direct family members to contribute to a client’s down payment (no repayment required).  The whole down payment can be gifted but the applicant(s) would be responsible to accumulate 1.5% of the purchase price to be used for closing costs on the transaction.  This is a great option, mainly because there is no rate premium to take advantage of this program.

Grant Program

There are a number of government agencies that have accumulated grant funding for qualified renters or first-time home buyers.  Although these funds dry up very quickly after they are announced, none-the-less, they are periodically available.  These funds will provide up to 10% of the down payment but there are normally a number of conditions tied to the approval, this can include a pro-rated repayment of the grant if the home is sold.

Rent-to-Own

Although the rent-to-own option might be the least favourable (from an overall cost stand-point), for some applicants this might be the only option available.  They may not qualify for the other outlined programs due to poor/non-existent credit history or issues with their current employment.  A rent-to-own contract is normally set for three years.  It is very important that the broker council the applicant throughout the term of the contract to ensure that they’ll be in a position to qualify for a mortgage and have the down payment funds to purchase the property from the investor when the contract expires.

It is best to sit down with a mortgage broker to determine which option would work best for your situation.  Once your plan is in place, good luck house hunting!

Darren Robinson is a Barrie mortgage broker, dedicated to offering the best mortgage strategies and provides personal assistance to help people qualify for difficult mortgages and loans. Call 705.737.6161