Saving for a down payment can be challenging. It can take many years to accumulate the funds needed, and for those who are not blessed with deep pockets, it can be downright impossible.
Sometimes, the only way to obtain the funds for a down payment is through borrowing. Luckily, there are programs available which allow homebuyers to purchase a property with zero down payment coming from traditional sources, such as personal savings. Genworth Canada, one of Canada’s mortgage insurers, has a program designed specifically for those who wish to acquire a mortgage and pay for the down payment using a loan.
Below are some of the most important details you’ll need to know if you’re considering applying for Genworth Canada’s Borrowed Down Payment program.
Acceptable loans and loan-to-value limits
The loan to value ratio (LTV) is a tool employed by financial institutions to assess the risk associated with lending to a client. Usually, the higher the LTV ratio, the riskier the loan.
The LTV limit under this program is 95%. If the property value is ≤ $500,000, a 5% down payment is required. Properties with a value > $500,000 and < $1,000,000 require a 5% down payment up to $500,000, with an extra 10% down payment on the portion of the property value above $500,000.
Genworth’s program favours those with high credit scores, stable employment, and excellent income.
To qualify, you must meet the standard income and employment verification requirements and your credit score should be at least 650.
The funds to pay for the down payment can come from a variety of non-traditional sources such as personal loans, lines of credit, credit cards, and gifts from non-immediate family members.
The required debt service ratios are as follows: GDS 39%/TDS 44%. A critical factor to keep in mind is that the borrowed funds you use to finance your down payment must be included in the TDS calculation.
You must prove you have the ability to cover closing costs of at least 1.5% of the purchase price of the property, this amount can vary depending on the lender. If you’ll be borrowing to pay for closing costs, the repayments must be included in the TDS calculation based on a 12-month repayment period.
Marketable residential homes are eligible, provided they have an estimated economic life of at least 25 years. New properties under construction are also permitted (provided they are covered by the New Home Warranty Program), as are existing resale properties.
To meet eligibility, the value of the property cannot exceed $1,000,000.
Fixed, variable, and adjustable rates mortgages are allowed. The maximum interest rate term permitted is 25 years, and the qualifying interest rate is the greater of the contract rate or 5-year benchmark rate. Amortization schedules up to 25 years are allowed.
There is a mortgage insurance premium that will have to be paid at the time of closing. It may be added onto the mortgage and is non-refundable.
As with all mortgage insurance, the higher the LTV ratio, the higher the premium you’ll have to pay. For further details about the Borrowed Down Payment program offered by Genwworth Canada, click here.