No down payment? No Problem!

No Down Payment, No Problem!

 The Canadian government came out with stricter lending rules, requiring borrowers to have a minimum of 5% down to purchase a house.  However, there are still lenders that will provide "cash back" or "Free down payment" options.

With the Free Down payment option, the lender will advance a down payment equal to 5% of the property lending value to the lawyer at the time of closing.

Qualifying criteria:

• beacon score over 680
• Must be in the same line of work for 2 years or 6 months at new company
• Rate will be at the posted rate
• Must be owner occupied
• 5-7 years only

If you sell, refinance, or have it assumed, you will be required to pay a portion or all of the cash back to the lender.

Credit Solutions- How to repair your credit and qualify for a mortgage

HOW TO FIX BAD CREDIT TO HELP QUALIFY FOR A MORTGAGE

CREDIT SCORE

• BAD CREDIT: Clean up any old bad credit and let it age (gracefully)
• APPLYING FOR CREDIT: Each time you apply for credit, your score drops. We recommend you keep your 'credit bureaus pulled' to 3-4 per year or less.
• GETTING NEW CREDIT:
  • Establish new credit and be good with it.
  • Always make your (at least minimum) payment on time
  • Do not go over your limit and try to keep your balance under 70% of the limit.
  • Lenders look for $1000-1500 of revolving credit with at least a re-payment history of at least 12-18 months. The greater the difference between your balances and your credit limits, the better your score.

PAST CREDIT CHALLENGES AND OVERCOMING THEM

• BANKRUPTCY: You must be two years discharged from bankruptcy and have at least one year of re-established credit, most preferably revolving credit, such as credit cards or lines of credit, before most lenders will give you a mortgage
• CONSUMER PROPOSAL: If you are in or have had a consumer proposal, it must be paid off one year before being able to get a mortgage.
• NO CREDIT SCORE: No credit score and not having credit is the same as having bad credit. You will need to establish credit.
• COLLECTIONS: If you have any of these showing, make certain they are paid or settled and reported to the credit bureau. If not reported it will be understood to be the same as if it is still outstanding. .

WHAT TO DO TO ESTABLISH OR RE-ESTABLISH CREDIT

• If you can't get a credit card, you will need to get a 'secured' credit card. There is a credit card company that will give you a credit card with a modest credit limit for a small deposit. This can help you get started. More preferred is a fully secured credit card available from most of the major chartered banks. You give them $1,000 and they give you a credit card with a $1,000 limit. Larger limits are preferred.
• Another way to re-establish credit (in addition to the credit card) is to get an RRSP loan, which most any bank will give you. They have the RRSP as security, so anyone can borrow for one. Choose the payment and term you are comfortable with.

OTHER CONSIDERATIONS

• Credit scores range from 350 at the low end up to 900 at the high end. The 'benchmark' considered good credit is a score of 680 or higher. The usual minimum a lender will look at for a traditional mortgage is 600.
• When a credit bureau is pulled and you are behind on a payment, it will show your score 30 to 50 points below your previous score. If your credit balances are near or over your limits, that will also be costly to your score if your credit bureau is pulled at that time. Once you pay the balances down, your score will increase once again.
• Credit reporting is on a 6 year revolving cycle, so anything that is on your credit bureau, good or bad, will drop off your score in the first month of the seventh year.
• Keep your old credit cards Older credit, assuming it has been good, is better credit, simply because of the history. If you stop using those older credit cards, the issuers may stop updating your accounts. As such, they will lose their weight in the credit scoring formula and, therefore, may not be as valuable - even though you have had the card for a long time. Use these cards periodically, even for small amounts, and then pay them off

Rent To Own

Is Rent to Own the Right Option for You?

Rent to own is an option for those wanting to get into home ownership but may have blemished credit and can't purchase a home right away. A Rent to Own typically means the owner has given the tenant the option to purchase the property for a certain price within a certain time frame.  Rent to Owns are structured in many ways.  One way is having a portion of the rent going forwards the purchase price or down payment, called Rent Credit. 

Rent to Owns may be beneficial for the following reasons
1) Rent credit can assist you in saving for the down payment or applied to purchase price
2) This option can allow you to repair your credit if needed in preparation for the purchase
3) You have exclusive or first right to purchase the property.
4) You can live in the home and feel if this is the home you want to grow with before buying it (test driving the home!)
A Rent to Own is not for everybody.
You're still considered a tenant so landlord/tenant rules apply. The owner has rights to terminate the lease if you do not perform what is agreed in the contract, thereby, losing your deposit.

If you're considering a rent to own, here are some general guidelines:
1. Make sure you set the purchase price and it's clearly stated in the contract. Some have it structured so the price of the property is determined when you exercise the option (they use an appreciation rule of 3-8% market growth). I would caution this if they are unwilling to set a price up front.  You don't want to waste months or years living and paying into a property if you don't know the end price of the property.

2. When you exercise the option, you have to be approved for a mortgage loan. Before committing to a rent to own option, speak with a mortgage advisor on your credit/financial situation.  This will give you a time frame you need to repair your credit.  Remember, most options want a deposit fee and there is a time frame in the option contract. If they set the option time frame for 2 years but your credit will take 3-4 years to repair, you can lose your deposit. Be realistic about your ability to exercise the option and how long it'll take for your credit to be repaired.

3. The rent to own option usually benefits the owners, not the tenants.  The Rent to Own is just a lease agreement with an option to purchase it. Therefore, don't be late on your rent payments, not even once because this will reflect whether you will be late on your mortgage payments. Have a lawyer look over the contract before you sign.

"I need to save for a down payment before I can buy a house"

Can't Save for a Down Payment for a House?

I often hear from people that they can't buy a house because they have to save for a down payment. To me, it makes no sense. As you wait, house prices keeps increasing, so you'll have to keep saving for a bigger down payment.  The rule of the land is that house prices may go down, but it'll never crash because land is a scarce resource.  Just take a look at what your parents or grand parents bought their house for.  Can you buy the same type of house for that price? Probably not.  You can probably buy a car for the price they bought their house! 

You can't compare the real estate market with the stock market. It's not as volatile as the stock market.  The real estate market is correcting right now and will stabilize over time. Sure, the economy is in the pits right now. But the interests are so low  that this is probably the best time to buy a house.  Five years ago, I was giving out mortgage loans with a 5.5-6.5% rate on a 5 year closed loan. I was preaching that this is the lowest its been since Elvis Presley. Well, I'm now writing loans for 2.1-2.9% 5 year closed rate. Trust me, you won't see these rates again because this is considered an emergency rate for the government to stimulate the economy.  In fact, the Bank of Canada is being urged to increase the rates and to keep increasing it until next fall.

Here are a few options if you don't have the down payment

• Borrow Down payment: get a line of credit, borrow against your RRSPs
• Cash back mortgages: You can even get 8% cash back when you put 5% down
• Seller financing: why not ask the seller if they are willing to do a vendor take back
• some lenders will allow you to get a second mortgage behind their first mortgage
• Rent to Own: There are programs in which you can rent the property and have credit towards your purchase price.