Should you ever buy a house with $0 down?
It’s always been said, in sound financial reasoning, that you shouldn’t buy a home unless you have at least 20 per cent of its value ready for a down payment.
Of course, there’s a reason the world plunged itself into a crippling recession for two years: we ain’t that smart with our money. Even as we recover from the downturn, real estate signs are once again everywhere telling you, the consumer, that you can buy this house with “no money down.”
Should you? Probably not, but is there at least an argument to be made? Should you ever, under any circumstances, buy a house with $0 down?
Certainly, the perils of such high-risk spending are well documented. Sites all over the ‘net lay out just what can happen for undertaking an entire home’s worth of debt.
But if it has to be done, if you’ve got to move forward with a no-money-down approach to buying a house, the Star’s Mark Weisleder offered a few tips recently for how to do it:
1) Get your credit right: Before applying for a mortgage, he advises, pay off or reduce all your outstanding credit card debt. Also, avoid changing jobs just before you apply (doing so could show a lender that you have an unstable employment history).
2) Set some money aside, anyway: To obtain a qualified mortgage, which requires you put down five per cent (not zero, but still) of the home’s value, many lenders want to make sure you’ve got not just enough to cover your monthly mortgage payments, yet also cash lying around to cover any household expenses that pop up. So, when you’re doing your mortgage budget, plan to need a little extra on top of those required payments each month.
Weisleder goes on to say more, though it appears even he might not buy into his own advice.
In any case, do you think you should ever buy a house with no money down?
By Jason Buckland, MSN Money
Posted by: SP | Jan 17, 2022 7:54:37 PM
This is ideal advise if you know that rapid house price inflation will continue, you can sell the property at the right time, you will have no interruptions in your income stream and there is no financial risk to you or your credit. So... perfect for the incredible Psychic Shasha!
(not so ideal however for mere mortals or the economies they are in sadly).
Posted by: John | Jan 18, 2022 12:54:49 AM
I just bought a second house on the lake for about $1 million, with no money down. I used the equity in my current house set up a line of credit to finance a down payment. Why? The interest rates are so ridiculously low that it would be stupid to move money out of investments (earning 8 to 12%) to purchase this home. My monthly payments for the mortgage and line of credit are less than 15% of my net income. If things change, and interest rates climb too high, I can always walk to the bank with cash to pay off the mortgage and line of credit. All are open.
Posted by: Trixie | Jan 18, 2022 8:31:56 AM
The simple person, for the average person is "no." Don't buy a home with no money to put down. In my opinion, the average (not rich) person shouldn't even buy a home unless they have 20% to put down. If you have that money saved up, it helps you in thebeginning and proves to the lenders that you have the ability to save. That's a big "plus." As for my husband and myself, we did put a large downpayment on our mortgage. Now, our mortgage is paid off.
Posted by: M.C. | Jan 18, 2022 10:00:08 AM
If you have a steady source of income and you do not live at home (with your parents) then yes, buying an affordable house even with no money down is a good idea. At today’s' rent prices, even a small apartment costs as much or more than the monthly expense of purchase, utilities, and any necessary maintenance. And the money you spend that way go directly towards you eventually owning the place rather than towards enriching some stranger.
HOWEVER, the first two clauses are crucial - if you live at home, it is better to save.
Posted by: KC | Jan 19, 2022 12:32:57 AM
I've just recently looked into getting a mortgage to purchase my first home. The bank was trying to sway me towards putting down 20% (which I have)...but I'm hesitant to do such a thing, because I can earn a substantially larger return on the money I don't put down than what the extra interest + cmhc fees would be over the term of a 25 year mortgage. Surprisingly, based on my numbers for my expected mortgage, downpayment and rate, an 8% per year return on that money not put down would create a net benefit.
Posted by: zakimar | Jan 19, 2022 6:31:33 AM
I don't know in what fantasy world people are getting 8% to 12% returns on a safe investment, but anyone that buys with zero down had better be able to pay the increased mortgage when the rates go up.
And btw, forcing people to have 20% down is just a way of the politicians keeping the competition down for their rich landlord friends. If the dirty politicians really wanted to help people,they would make sure the banks don't charge us so much more for their prime than they pay the government for it's prime. And reducing the maximum mortgage to 30 years will mean that nobody graduating in the future will be able to afford a house in the GTA (unless they are graduating from law or med school). I guess Pickering and Newmarket are going to get a lot more condos and will start to look like the travesty that is North York in 20 years.
Posted by: Trixie | Jan 19, 2022 8:10:54 AM
Zakimar, if you can't afford a 25 or 30 year mortgage, you don't have enough money yet for a mortgage, pure and simple. First of all, banks are going to charge interest, they are a company. Every company is in business to make money.
Next, having anymore than a 30 term mortgage is way too much. Look at it this way. You have an average of 80 years of life, 20 more, if you get lucky. If you do a 30 year mortgage that's 1/3 of your life gone, paying that large hunk of cash to your debtors. Don't you want to have money to travel some or have children, or a bit extra in retirement? Maybe the real problem for you is that housing is too expensive in the GTO area. I would agree with that. However, stiff competition will lower the prices. When houses aren't selling, prices will come down.
Zakimar, it appears you like gov't regulation. However, having less gov't and more competition will give us better choices at a fairer price.
Posted by: GenXer | Jan 19, 2022 9:36:07 AM
I do not agree with anyone buying a home with 0% down (excluding the poster who has the means to do it on his cottage). When my husband and I were buying our first home it was hard enough scraping the 5% down to get it, but we were lucky and bought in '96 when the market was slow and were able to sell in 3 years for a great profit and then put more on the second house and then 5 years later $100k on the third house. Now, we are in a position (technically) to buy an even larger/fancier house, but we will not do that. We just want to be mortgage free, be able to do some cosmetic renos and maybe actually have a trip more than every 5-7 years. And of course, we have 2 sons to put through University. What we have done is shorten our amortization so that house #3 will be paid off 6 years sooner (hopefully even less) than the original 25 year amortization that we had when we bought it. We have enjoyed historicly low interest rates the entire time we have owned homes and I worry how my sons will ever get into the market when they are older given that the 4-6% mortgage rates will likely by then be a thing of the past.
Posted by: John | Jan 19, 2022 10:27:02 AM
Zakimar, who said anything about safe investments earning 8 to 12 %. I said "MY" investment are earning this much. They are not what YOU would consider as safe investments. I call a GIC a safe investment. My high returns are from partnerships in oil exploration companies, which have provided terrific tax shelters and huge returns so far. Even in 2008, my lowest return was 5.6%. These investments are only for those who can afford to lose it (ie high risk). Even if I had "safe" investments, earning only 2.5 to 3.5% return, this is still more than the interest on my mortgage and line of credit, which combined, average below 2%. This is why I chose 0% down payment. As I mentioned in my last post, if mortgage rates jump up, I can then choose to pull money from investments to pay off my open mortgage, or choose to pay the higher monthly payments. My partnership investments are locked in for 2 years each, but staggered. If I can't shift enough money from investments all at one time to pay off 100% of the mortgage, I can certainly afford to pay higher rates for the time needed (unless mortgage rates climb to 20% or higher). Your comment about the 20% down payment requirement is pure fantasy. Maybe you are reading too many of those conspiracy theory books.
Posted by: Tenacious Otter | Jan 19, 2022 11:29:45 AM
It's amusing to read comments, and try to decipher, in which geographic areas they originate. Just like to say that, you all should do the same. It'll tell you whether or not you should consider purchasing realestate in your geograpic area or not. It will also give you an indication of the risks your facing. 0 down, isn't a reality for most, so I believe the question is moot. We are talking about Canadian banks here. Whom I believe have learned some risk aversion from their forays into the sub-prime meltdown market of our southern neighbors. Not that they weren't tight with lending in the first place, one of the reasons they were some of the healthiest banks in the world during the financial meltdown. Banking in Canada is not a monopoly, there are a multitude of lenders out there, the spreads between central bank rates and public rates are in relation to risk and profit, and are very tight. I"d also like to say that those who believe they may qualify for a zero down mortgage may find themselves facing a premium on their interest rate, directly related to their capital holdings, something to consider when signing on the dotted line.The interest rate offered will have a direct relation to the risk percieved by the lender.Anyway, happy debt hunting, be careful what you bag.
Posted by: Anniey Tom | Jan 19, 2022 12:16:16 PM
There is no doubt that the market for houses has been cooling off recently. More and more home buyers are taking advantage of better bargain deals and easy mortgage loan terms to go from being renters to being home owners. With so many people entering the market, it is inevitable that questions, "How to buy a house?", will arise.There are many things to consider when buying your first home.
Posted by: Roadtrip | Jan 20, 2022 2:46:45 PM
When it comes to buying a house for your own use for you and your family to LIVE in,pPlease TRUST this advice, and you will sleep better at night, and be way way ahead in the long run!!!
HIGH downpayment; SHORT amortization.
Anything else is purely smoke and mirrors!
All this bragging about high rates of return in multiple investments is irrelevant to personal home ownership.
If one is savvy enough or connected enough or fortunate enough to have super high yield investments, they can put the income they earn directly into those investments, and minimize the risk of home ownership by maintaining high equity and minimizing the amount and length of time they pay interest on their personal residence.
DO NOT FACTOR YOU PERSONAL RESIDENCE INTO YOU OTHER INVESTMENT VENTURES. Consider it a place to live, and as a LONG TERM fall back equity position for your own comfort later in life.
(In fact, a true calculation of one's "net worth" eliminates the personal home from the equation.)
Remember: High Downpayment - Short Amortization.
Posted by: essaysmith | Jan 21, 2022 9:34:04 AM
I got a house nearly 5 years ago with 0 down. The bank boosted my interest rate by 0.5% for the term (5 years), which will probably work out to more than 5% down, but it was so much easier than scrimping for the downpayment. My amortization was only 25 years, something I am comfortable with, especially paying biweekly which brought it down to about 21 years. Now when I renew my mortgage this year, I will get a rate more in line with the market and actually have a lower payment.
Posted by: dawn | Jan 24, 2022 10:36:47 AM
Do you all realize that by buying homes your paying the same amount and sometimes even more than you paid for you house, in interest???
Posted by: Toronto | Jan 24, 2022 11:02:58 AM
I don't know why non-home owners think that they can afford a condo because they think "it's the same as i am paying now in rent"... double your rent that's what your monthly housing costs will be when you calculate mortage, insurance, hydro, security, maintanance, etc. Right now I pay $1000 a month for renting a one bedroom in Toronto (all in), next month i take over my new condo and my total costs every month will be almost $1900.
So if you are renting right now and you can't afford to save money every month to put away for a downpayment then you sure are not going to be able to afford a home and take care of it.
And if you are paying $1400 or more for a one bedroom appartment in downtown Toronto you are crazy, move 15 minutes away and save that extra money every month. I live in midtown and takes me only 20 minutes to get downtown.
Posted by: sjrw11 | Jan 24, 2022 1:34:29 PM
I bought my mini-home 13 years ago with no money down. The interest rate is high, but the cost of renting anything equivalent ( three bedrooms, 1 1/2 baths) has risen above my total cost of one thousand a month. "Buy what you can afford" is more important than how much you pay in downpayment. If you buy a house that you cannot afford twice the interest rate, the bank will take it even if you have paid 20% down. Try and sell a house in 90 days if they call your mortgage. Happened to me when I lost my job in 1982.
Posted by: dnnich | Jan 24, 2022 10:22:26 PM
One thing should be noted that you have to make double on your investments than your mortgage because you have to pay tax on your gains so investing while having a mortgage is insane. I tried to save 25% down to avoid the insurance I started saving when townhouses were $100000 and by the time I had $60000 the townhouses were $250000. Luckily for me after 9/11 prices dropped so I could buy. Otherwise I would never be able to buy on my terms since I don't make much money. The problem with 0% down is if you can't save more than 20% you probably shouldn't be buying a house for you don't have the skills to manage that debt