How To Buy A Home With No Money Down In Canada

A down payment is the amount of money you put towards the purchase of a home. The down payment is deducted from the purchase price and the balance is covered by your mortgage. The down payment requirement is based on the value of the home’s purchase price.

For example, for an owner-occupied home:

If your home costs $500,000 or less: You’ll need 5% minimum down payment.
If your home costs more than $500,000: You’ll need a minimum 5% down on the first $500,000 and 10% on the remainder.
If your home costs $1 million or more: You’ll need a minimum 20% down payment.

According to the Canadian Real Estate Association (CREA), the national average home price was $685,809 in February 2024. Using that purchase price, here’s what the minimum down payment would look like:

5% down payment on first $500,000: $25,000
10% down payment on balance of $185,809: $18,580.9
Total minimum down payment: $43,580.90

If your down payment is less than 20%, you will need to get mortgage loan insurance, also known as a high-ratio insured mortgage from one of three lenders: Canada Mortgage and Housing Corp. (CMHC), Sagan (formerly Genworth Canada) or Canada Guaranty. (Your lender will arrange this for you.)

An insured mortgage provides extra assurance to your lender that you will be able to make your mortgage payments and not default on your loan. Your lender pays a mortgage default insurance premium on your loan that is calculated as a percentage of the mortgage. (A CMHC-insured loan can be between 0.60% and 4%, plus provincial tax in Quebec, Ontario and Saskatchewan.) You can pay this as a lump sum or have it blended in to your mortgage payments.

The amount of mortgage that you qualify for is based on your down payment amount, credit history, credit score, total debt and annual income.

If you can make a down payment of at least 20%, you will qualify for a conventional mortgage that does not require insurance. Using the example of the average home price of $685,809, a 20% down payment would cost $137,162.

Before the 2008 subprime mortgage meltdown in the U.S., it used to be much easier to get a mortgage. To protect the Canadian housing market from a similar implosion, in October 2008 the then federal government under Prime Minister Stephen Harper banned zero-down mortgages and created a new requirement for a minimum down payment of 5% of a home’s value.

However, while no down payment mortgages are technically a thing of the past, there are ways to buy a home without saving the entire down payment amount in cash.

1.) Flex Down Mortgage

While mortgage lenders have strict rules on how much money you can borrow in relation to your overall debt load and income, a Flex Down mortgage allows you to borrow the down payment from one lender and use those funds to secure your mortgage. Legal sources of this borrowed money include a personal line of credit, home equity line of credit (HELOC) or personal loan, including a loan from a family member. While you could also use a credit card for this borrowed money, it’s not a good idea given today’s high-interest rates.

It’s important to note that since July 1, 2020, the CMHC no longer allows “non-traditional sources of down payment that increase indebtedness,” which means that buyers looking to secure a CMHC-insured mortgage will no longer be able to borrow money for a down payment. Sagan and Canada Guaranty still allow qualified buyers to borrow their down payment.

Eligibility:

To be eligible for a Flex Down mortgage, you need to have a stable source of income, a very good credit score, strong credit history and strong debt-to-income ratio.

2.) Government Programs for Down Payment

Depending on what province you live in there may be a government assistance program to help with a down payment. For example:

Nova Scotia Down Payment Assistance Program (DPAP): First-time homebuyers can apply to receive a loan of up to 5% of the purchase price of a home. Loans are interest-free and repayable over 10 years. The maximum loan is $25,000.

Manitoba Housing Down Payment Assistance: This program offers down payment assistance to eligible applicants interested in purchasing a vacant home owned by Manitoba Housing in select rural areas or to current tenants interested in purchasing the home they are currently renting from Manitoba Housing.

PEI Down Payment Assistance Program: Eligible borrowers can apply to receive an interest-free loan of up to 5% of the purchase price of a home, to a maximum of $17,500. The loan must go towards the down payment for the home.

It is also worth checking if your municipality offers financial assistance for a down payment. For example:

Region of Waterloo Affordable Home Ownership Program: This program provides low- to moderate-income households with down payment assistance loans of 5% of the purchase price (maximum $480,000) of an eligible home.

County of Simcoe Homeownership Program: This program provides up to 10% down payment assistance paid at closing to your lawyer in trust.

While having to put less cash down on a mortgage can seem tempting, there are some things to consider before signing up for a down payment loan:

Pros of Down Payment Loans

• You don’t have to deplete your cash reserves (or wait until you have saved enough) for a large down payment.
• You can start building home equity sooner rather than spending money on rent.

Cons of Down Payment Loans:

• In addition to a mortgage insurance premium, you may also pay a higher interest rate, depending on your credit worthiness.
• You’ll increase your overall amount of debt (and your debt to service ratio) as you’ll now have both a mortgage and a mortgage down payment loan.
• You typically need a good credit score and history to be eligible.

If you’re not interested in (or eligible for) a mortgage downpayment loan, there are alternative ways to finance the purchase of your first home.

1.) First-Time Home Buyer Incentive

This federal program offers first-time home buyers 5% or 10% of your home’s purchase price to put toward a down payment to reduce the amount you need to borrow. You still need to have the minimum 5% down payment. The deadline for new applications and resubmissions to this program is now March 21, 2024. No new approvals will be granted after March 31, 2024. After this date, the program will be discontinued. Read our Feds Scrap First-Time Home Buyer Incentive Program article to learn more.

Instead of a conventional loan, this program is a shared equity mortgage between the federal government (via the CMHC) and the home buyer. This means that you are eligible to receive a certain amount based on the purchase price of your home and the type of home you are buying, i.e. the incentive amount for a new home is 5% or 10% and an existing home is 5%. The incentive must be repaid in full on the sale of the home or after 25 years.

Using the example of a $400,000 home and a minimum down payment of $20,000 (or 5%), you can apply to receive $20,000 in a shared equity mortgage (5% of the existing home price).

Eligibility:

• Your total qualifying income cannot be more than $120,000, or $150,000 if the home you are purchasing is in Toronto, Vancouver or Victoria.
• Your total borrowing (the mortgage plus the program amount) cannot be more than four times your qualifying income (4.5 times if you are buying in Toronto, Vancouver or Victoria).
• You meet the minimum down payment requirements with traditional funds, such as savings, withdrawal from a RRSP, or a non-repayable gift.
• Your first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium.

Learn more: How the First-Time Home Buyer Incentive Can Help You Buy a House

2.) The Home Buyers’ Plan (HBP)

If you have money saved in a registered retirement savings plan (RRSP), the federal Home Buyers’ Plan, or HBP, allows first-time buyers to withdraw funds from their RRSP to buy or build a qualifying home. The maximum you can withdraw tax-free is $35,000.

Eligibility:

• You must be a first-time home buyer.
• You have a written agreement to buy or build a qualifying home.
• You must be a resident of Canada when you withdraw funds.
• You must occupy the home as your principal residence within one year.

Learn more: What Is Canada’s Home Buyers’ Plan?

3.) First Home Savings Account (FSHA)

A First Home Savings Account, or FSHA, is a type of registered savings account designed to help you save for you first home. Kind of like a mix between a RRSP and TFSA, a FSHA lets you make tax-deductible contributions to your account and withdrawals are not taxable. You can contribute a maximum of $8,000 annually, and the lifetime contribution limit is $40,000. Your account can stay open for a maximum of 15 years, or until the end of the year you turn 71.

Eligibility:

• You must be a Canadian resident.
• You are between 18 and 71 years old.
• You must be a first-time home buyer.

Borrowing money for a down payment on a home may seem like a good idea if you’re keen to get into the housing market sooner rather than later and if you’re spending large amounts of cash each month on rent.

However, taking on more debt is risky, especially if housing prices fall, interest rates go up or if a life event, such as losing your job, negatively impacts your ability to service that debt.

In general, the more money you can save before purchasing a home, the better—and the more money you’ll save in the long term as you pay less money over the life of the loan.