The other week I had the great plesure of meeting Mark Weisleder. Mark is an awesome guy and has a great deal to say about the real estate market.
I have to agree with Mark's column about how the no money down mortgage can still work in Canada. Here is the artical below. have a read and post your comments below.
Last week’s column about buying a house with no money down hit a nerve.
Many readers were angry that I would suggest such a thing because it was
this sort of loose lending that led to the U.S. housing collapse.
I said that if you have a good credit rating and stable employment, but do not have enough money for the down payment on a home, there are some lenders that will include the down payment in the amount they lend. Depending on the lender, this payment can be $20,000 or more
You will have to agree to take the bank’s rate for a five-year closed mortgage, thus you will probably be paying 3 per cent more on a monthly basis than you would if you were using a variable rate mortgage, which is popular today among most home buyers. While this extra interest will amount to more than $20,000 over a five year period, it will be offset by the fact that you get to close your purchase now.
In the U.S., during the housing boom, there were free government subsidies for buyers to use for a down payment on a home, combined with much looser lending restrictions, which resulted in buyers who had poor credit being approved for mortgages that they could not afford. These buyers were later called “NINJA” (No Income, No Job or Assets) buyers because they had no credit at all and yet were approved for loans. This was a major reason for the U.S. housing collapse. When the market turned, people could not sell their homes and could not make the mortgage payments.
This is why those who criticize these Canadian no down payment mortgages are wrong. Many consumers have excellent credit and stable employment. It is for these people that the lenders will pay up to 5 per cent of the total loan amount as a payment to the buyer on closing to use for their down payment.
This is not a government grant.It is money paid by the lender because they are satisfied that this borrower has the ability to make all of the monthly payments for the entire five-year term of the mortgage. These buyers who qualify for a no down payment mortgage will still have to demonstrate that they can afford to carry the mortgage payment and all other household expenses before being approved.
The main criteria for any buyer should be, “Can you afford the mortgage payment and all of your household expenses in a responsible manner.” If you can,
then you should be able to buy a home, regardless what down payment you can afford. In addition, as a result of current historically low interest rates,
even if you buy a home with no money down, you will still pay off thousands in principal in your first year of ownership, just by making the monthly
payments. You are thus building equity in your property instead of paying rent, where you build no equity.
There is no evidence that the U.S. housing collapse will come to Canada. Even after the current U.S. collapse in prices, it is estimated that still 20 per cent
of American properties are “under water”, where the owners owe more in mortgages than their properties are worth. There are still millions of U.S.
homeowners facing foreclosure proceedings. In Canada, as a result of more prudent lending practices, less than 1 per cent of Canadian homeowners face
these same issues.
Some consumers are able to use their RRSP funds as a down payment for their first home. This can amount to a $25,000 interest free loan that you can
borrow from your RRSP to assist you with any down payment. You have to pay it back to your RRSP plan over 15 years but it is still interest free.
This is not a government grant, but it is a government approved method to assist first time home buyers to use their RRSP money to assist them in buying
their first home. Canadians are primarily conservative, and many do have a priority not only in saving for a down payment, but also to try and pay down
the principal amount of their mortgage as soon as possible. I totally support this.
Yet in my opinion, if you can afford the mortgage payment, as well as the rest of your household expenses, it should not make a difference whether you
can pay 20 per cent, 10 per cent, 5 per cent or nothing as a down payment.
The dream of Canadian home ownership should be within reach for anyone who can truly afford it.
I totally agree with you. I do not claim to be an real-estate or economics expert, but your claims make a lot of sense. I think that what I related most to was that you said that Canadians are more conservative. I think that is the main issue. people will not run and buy a house just because they can get a loan. they will do so after a wide assessment, and after they reach the point where they feel safe enough financially to buy a house. and that makes a huge difference!
Posted by: real estate | 10/09/2011 at 08:31 AM
Interesting article, not sure how i came across this but interesting read.
Posted by: christopher Pia | 04/19/2012 at 01:49 PM