No Money Down or "Free" Mortgage Options

[AnitaHouse2]

Hello, I am wondering if anyone has any insight they would be willing to share with me. We are first time home buyers who were just pre-approved by our bank for a "No Money Down" mortgage. My question is, can we negotiate a better rate with this mortgage type (if we were to see a broker), or is it fixed at the bank rate and can't be negotiated? Basically, are we getting the best rate available to us for no money down? (FYI, 5 year closed at 3.44%). TIA for any responses!

[marstec]

Is there a reason why you want to go the "no money down" route? It seems to me that if money is so tight that you can't come up with a down payment, perhaps you should wait to buy a house. Please don't take this comment the wrong way. I just think you have a better chance of success if you have good cash flow when starting out as a new homeowner. With a down payment (20%?), you can also avoid having to take out mortgage insurance, which is an added cost. By having a decent down payment, you also demonstrate to the financial institutions that you are a good risk, which may lead to a better rate.

IMO, the reason why so many people defaulted on their mortgages (which contributed to the house collapse in some areas), is that people didn't recognize that they could not handle the responsibility of so much debt.

When we had a mortgage, we went through the bank. I'm not sure whether a broker could give you a better rate, especially if you don't have a down payment.

[ty & nessa's mom]

There is nothing wrong with a no money down mortgage, we had a cash back mortgage and used that for our down payment. We didn't have enough money saved lived in a small 2 bedroom apartment with baby #2 on the way. We could easily afford the payments and put more on the bi-weekly payment.

IMO 3.44% for a no money down mortgage is a really good rate. When we got ours over 5 years ago it was 6.3%.

The only thing is read the fine print there are usually stipulations on these types of mortgages. For us if we wanted to move our mortgage elsewhere we had to pay back the cash back.

[NuCoupon]

The way house prices have been going, you may end up paying thousands upon thousands of dollars more for a house by waiting a year. If you have the income to make the payments and make a dent in your mortgage then I think you're in a position to go for a no-money mortgage. Just my 2 cents.

[Shwa Girl]

Like marstec, I would RUN from a no money down mortgage. There may be job loss or major illness, and then the mortgage may not be easily paid. I would have the appropriate down payment saved so there is no mortgage insurance + an emergency fund of 3-6 months living expensive. This is before signing on the dotted line.

House prices fluctuate. They will not always go up. Some may have a distressed sale, fixer upper, estate sale etc. A good realtor can find gems where others have not been able to.

Just my experience.
Just my 2 cents worth.

[MortgageQueen]

Hello, I am wondering if anyone has any insight they would be willing to share with me. We are first time home buyers who were just pre-approved by our bank for a "No Money Down" mortgage. My question is, can we negotiate a better rate with this mortgage type (if we were to see a broker), or is it fixed at the bank rate and can't be negotiated? Basically, are we getting the best rate available to us for no money down? (FYI, 5 year closed at 3.44%). TIA for any responses!

Anita,
The rate is excellent for a "no money down" mortgage. I'm assuming you have very good credit.
Every individual is unique so I can't say whether this is a good idea or not. I do agree with the others that you should have a savings for a minimum of 3 months living expenses. With zero equity in your house, you're living on the edge. . as it were.
I also agree that you should take a very close look at the small print. I'm guessing there is NO option to get out of that term except selling the house for any reason. Check for "administration" and "lender" fees. Also, what are your payment options?

[Insane]

I thought the government put a stop to no money down morgages awhile ago?

[marstec]

I thought the government put a stop to no money down morgages awhile ago?

I thought it was the forty year term mortgages that were stopped.

[mellyskater]

of course its always best to save what you can for downpayment but my dh and I found a perfect house a great price before we got married (came by it accidentaly) and because we were paying for the entire wedding we had little extra to part with (i had only started working full time 1 year since was a student before hand) i must say if you can afford the payments with some flex room go for it bc we have never had an issue and even increased payments. The insurance sucked but was a one time cost.

[Shwa Girl]

Before we even had the downpayment and emergency fund, we did not even look at homes - so as not to be tempted, become emotionally attached, not to be disappointed.

When we found a home, it was the first of 26 we visited. We looked at 56 homes in total. We had a checklist going in. We tried to take the emotion away -- not easy to do. We paid $350 for a home inspection -- best money spent, ever

After our conditional offer, we checked out the neighbourhood with available police information, we visited during rush hour, morning and evening and on weekends. We did this for a month.

We had friends living in the area for about 5 years. They told us the ins and outs of the area, the neighbourhood, the history, the good and the bad.

During bad recession times, we didn't cringe. If we had a job loss we could manage for at least 6 months. (BTW, we would take a part time job while looking for full time, to keep the mortgage paid on time and on our accelerated schedule.)

Neighbours have come and gone over the past few years. Both good and bad neighbours.

We are happy we did our homework.
We are happy we waited and saved.

[AnitaHouse2]

Hello again, and thanks for all the replies!

We are in Saskatchewan, just last year the house prices in our city went up 10%, and they are predicted to go even higher in 2012 so we'd like to get into the housing market as soon as possible, but at the best rate available to us. I should also mention our housing shortages along with sky rocketing prices in our city have further propelled us into action. The "good" houses in our city do not last long on the market (typically sold within days), so waiting until we have 20% or more saved is not a very viable option and could in fact hurt us financially.

My question was not about the mortgage type itself, it was about the rate, specifically if it can be negotiated. But since it has become a topic I will explain a bit more here. Affordability isn't the case, we do indeed have a nice down payment saved, however unless we dip into our RRSP's and other investments it won't be the 20% recommended (it would be heavenly to have $80,000 in our savings account just for our down payment though lol). We have never applied for a mortgage before, this was the first crack at it. Our mortgage specialist mentioned that this option was becoming more popular for people in our situation who have less than the 20% cash in hand for a down payment but who do have very good, stable income, very little debt and great credit. So we were pre-approved, at a great rate it seems, for this mortgage type. Of course this type isn't for everyone, and of course it's not our only mortgage option, but its nice to know it is available to us if ever we choose to go ahead with it.

[ashedfc]

Hello again, and thanks for all the replies!

We are in Saskatchewan, just last year the house prices in our city went up 10%, and they are predicted to go even higher in 2012 so we'd like to get into the housing market as soon as possible, but at the best rate available to us. Affordability isn't the case, we do indeed have a nice down payment saved, however unless we dip into our RRSP's and other investments it won't be the 20% recommended (it would be heavenly to have $80,000 in our savings account just for our down payment though lol).

My question was not about the mortgage type itself, it was about the rate, specifically if it can be negotiated. We have never applied for a mortgage before, this was the first crack at it. Our mortgage specialist mentioned that this option was becoming more popular for people in our situation who have less than the 20% cash in hand for a down payment. We do however have very good, stable income, very little debt and great credit. We know can afford the payments, even if they are a bit higher with rolling the down payment into the mortgage. Of course this mortgage type isn't for everyone, and of course it's not our only mortgage option, but its nice to know it is available to us if we choose to go ahead with it.

If your above explanation is true, than My Dear... Go for as less Down Payment as possible & take as much cash back as possible. Why block your money in a dead, long-term, boring investments (like a house). Take it, while its available, because its unheard of, to get 5% cash-back on zero down-payment. Its exactly the same thing what was rampant in US in 2003-2007, which caused the US housing explosion Than Housing implosion. If they have started in Canada than the housing price here will see the same fate.
But (in reality) do we care. Make the best use of the benefits while is still available.
Good Luck. My suggestion: Whatever saving/ RRSP/ investments you have, be very conservative in their allocation, maybe GIC/savings/etc. You are already going very aggressive on the housing. Its just to protect the savings from having any loss...

More than the interest rate: you should focus on the actual Dollar amount of monthly payment. Since you are taking fixed interest rate, that Dollar amount will stay the same for the 5yr time frame....
You are paying a bit higher rate, but you are buying peace of mind (that your bill wouldn't increase for atleast 60months)

[NuCoupon]

I wanted to mention as well if you are in a position to make prepayments or anticipate being able to make prepayments during your mortgage term, you may want to consider prepayment options when getting your mortgage as well. It shaves off how much you pay in interest. Good luck

[jalalpur]

We are in Saskatchewan, just last year the house prices in our city went up 10%, and they are predicted to go even higher in 2012

Mostly people buy stuff when its on sale (that's when you get fair value)
When its already up 10% & more over the last year & couple years, how much more up you expect it to go?

[Shwa Girl]

Mostly people buy stuff when its on sale (that's when you get fair value)
When its already up 10% & more over the last year & couple years, how much more up you expect it to go?

Saskatchewan is a special case now, with oil and such.

I think there are still bargains to be had, maybe just outside of the boom area of Saskatchewan