Sometimes it’s done by securing a second loan in addition to the first mortgage. It may be a vendor taking back the additional money between the first mortgage and the balance owing. On occasion money is borrowed and not registered as a mortgage by lenders who are family members or trusted friends. It happens. It happens in other ways as well.
There are plans called “rent to own” where a purchaser pays a monthly amount of what would be a mortgage payment and a little extra for some time. After an agreed time this extra monthly money becomes the down payment and faith is established to close a deal on a house. There are many variations of “rent to own”.
These no money down and rent to own deals are more common in a slow market when “creative” financing is necessary to help people purchase homes. I have heard wonderful stories about new immigrants and families working together to make deals like this happen on collective low incomes.
No money down plans are not talked about very much. Certainly not openly. Some people talk of these arrangements to purchase a home as if they are shady schemes and unacceptable. I am curious why. I have talked to lawyers and Realtors who have described methods to buy a house without money down in ways that are legal, ethical and in fact good for the community.
It is always better to have someone with a vested interest in their home in the community than someone who is just renting from a rich guy who owns several houses on the street and is sitting on the investment for a payoff down the road. It is often said that rental properties are not as well cared for as homes with owners living in them. If more people starting out or younger families had a chance to buy a home, I believe it would benefit all.
When I look at property values today, especially in cities like Vancouver and Toronto, I am staggered to think of how long it would take a young family to save for a down payment while they pay rent on a home and raise a family. A $400,000 home requires a down payment of $100,000 to secure a traditional 75 per cent mortgage. What person or family do you know that can save $100,000 in a reasonable amount of time?
Today, a family that does not have help from mom and dad or a trust fund for a down payment is shut out of the market. It seems to me that the opportunities to buy a house should be available to everyone. I wonder why there are not more Realtors who can facilitate the purchase of a home with no money down. There are so many specialists I see advertised today. Why not a “no money down specialist”?
If all the closing costs associated with the purchase of a home are added up, it totals thousands of dollars already. That amount is a down payment right there. For many families that’s a lot of money to save. Any lender would have to conclude that a family willing to risk those savings on a home will probably be good for the payments.
While we are all delighted to see active markets today and are pleased that property values continue to rise in all parts of the country, I worry that the cost of a home is soon going to be so high the average person and family is going to be shut out of the market altogether. We may find ourselves in a situation where the only people who can buy homes are rich investors or property corporations who buy houses and rent them out. Without the pride of ownership and care that an owner occupied home would have, our neighbourhoods could be at risk.
I cannot see the government stepping in to address this challenge. I see no other institution or organization solving this puzzle other than the real estate industry.
Heino Molls is the publisher of REM. Email firstname.lastname@example.org.