In the past, it was possible to obtain a mortgage loan with no down payment when purchasing a property. Since 2012, this reality has changed, making access to homeownership more regulated and, for many households, more difficult.
In a context of rapidly rising real estate prices, building a down payment through traditional personal savings represents a significant challenge, even with a stable income. This does not mean, however, that a purchase project is out of reach.
A down payment can come from different sources and does not rely solely on accumulated savings. This article presents the seven main alternatives to the traditional down payment to consider when planning a real estate purchase.
In brief
- A minimum down payment of 5% is required to purchase a property in Quebec, but it does not necessarily have to come from personal savings.
- A down payment of less than 20% requires mortgage insurance, which increases the total cost of financing.
- Several recognized alternatives exist to build a down payment, including the Home Buyers’ Plan (HBP), family gifts, government programs, and refinancing.
- Some options, such as a personal loan or a line of credit, may be accepted, but they directly affect debt ratios.
- Choosing the right strategy depends on your financial situation and must be carefully assessed to secure mortgage approval.
What is the minimum down payment to buy a house in Quebec?
In Quebec, purchasing a house requires a minimum down payment of 5% of the purchase price. This amount must be provided by the buyer and can represent several thousand dollars to invest upfront.
When the down payment is less than 20% of the purchase price, the mortgage must be insured, which results in additional costs to be included in the financing. These insurance fees are generally added to the mortgage amount and increase the total cost of borrowing.
This requirement explains why the down payment is often a major challenge for buyers and why many turn to alternative strategies beyond traditional savings to make their real estate purchase a reality.
Mortgage loans: can you buy a home without a down payment?
Even though a minimum down payment is required to buy a house, it does not necessarily have to come from personal savings accumulated over the years. Several recognized mechanisms make it possible to build the required amount using resources already available, depending on your financial situation.
1. Use your RRSPs (Home Buyers’ Plan)
The Home Buyers’ Plan (HBP) is a federal program that allows you to use part of the funds accumulated in a Registered Retirement Savings Plan (RRSP) to buy or build a property. Under this program, you can withdraw up to $60,000 per person, or $120,000 for a couple, without immediate tax consequences.
The withdrawn amounts must be repaid starting in the second year following the withdrawal, through annual payments spread over a maximum period of 15 years. Early repayments can also be made without penalty.
Funds withdrawn under the HBP are not used solely for the down payment. They can also be used to cover closing costs such as notary fees, land transfer tax, renovations, or the purchase of furniture.
What are the eligibility requirements?
To be eligible for the program, certain conditions must be met:
- Have stable, permanent employment;
- Have a good credit history;
- Maintain relatively low debt ratios;
- Hold RRSP funds that have been deposited for at least 90 days.
2. Use a personal loan or a line of credit
A personal loan or a personal line of credit can be used to build a down payment for a real estate purchase. The main difference between these two options lies in their repayment structure. A personal loan involves fixed monthly payments according to a schedule established with your financial institution, while a line of credit offers greater flexibility in terms of amounts and repayment option.
That said, few mortgage lenders accept this type of financing for a down payment, which can complicate the process. In this context, working with a mortgage broker can be particularly helpful in identifying lenders open to this option and structuring the financing properly.
What are the eligibility requirements?
As a general rule, for a personal loan or line of credit to be accepted as a down payment, the following conditions usually must be met:
- Have a credit score of 650 or higher;
- Present a positive financial profile, with no bankruptcy or major debts;
- Demonstrate stable, permanent employment for at least two years;
- Maintain a good credit record, with no late payments or credit limit overages;
- Have sufficient liquidity to cover the land transfer tax and notary fees.
It is important to note that the debt related to a personal loan or line of credit is added to other liabilities when assessing borrowing capacity. Debt ratios must therefore remain within the lender’s requirements to qualify for a mortgage.
3. Obtain an equity gift
It is possible to purchase the primary residence of a close family member by using an equity gift as a down payment. In this case, the equity, meaning the difference between the sale price and the actual market value of the home, is recognized as the down payment.
For example, if a property is sold for $350,000 while its market value is $420,000, the $70,000 difference can be used as a down payment. This option must be approved by the lender, who will have the property appraised. Purchasing from a close family member may also allow you to avoid the land transfer tax, resulting in additional savings.
4. Use a family gift
The down payment can also come from a financial gift provided by an immediate family member, most often a parent or grandparent. This amount can be used in full or in part by future buyers to finance the purchase of the property. This solution is frequently used when saving capacity is limited but family support is available.
A family gift is recognized by the majority of mortgage lenders, provided certain requirements are met to avoid any ambiguity regarding the nature of the funds.
The gift letter: an essential document for financing approval
For the received amount to be accepted as a down payment, the lender will almost always require an official gift letter. This document confirms that the amount provided is indeed a gift and not a loan to be repaid later. The gift letter must generally specify:
- The identity of the donor and the recipient;
- The relationship between the donor and the recipient;
- The exact amount of the gift;
- An explicit statement that no repayment is required, now or in the future;
- The donor’s signature.
5. Rent-to-own
Rent-to-own allows you to occupy a property as a tenant while reserving the right to purchase it at a later date, at a price set in advance or under conditions defined in the contract.
A portion of the rent paid may sometimes be applied to the down payment at the time of the final purchase. This arrangement can suit individuals who do not currently have a down payment but want time to improve their financial situation or accumulate funds.
It is essential, however, to properly structure this agreement with a clear contract, ideally with the help of a professional, to avoid unpleasant surprises.
6. Take advantage of government grants and programs
Several municipalities, including the City of Quebec, Montreal, and Laval, offer homeownership assistance programs designed to help first-time buyers finance their down payment. These forms of assistance can take various forms, such as interest-free loans, purchase credits, rebates on land transfer taxes, or property tax credits.
For example, the City of Quebec offers the Accès Famille Program, which provides a loan equivalent to 5.5% of the property’s price to finance the down payment. This loan, also known as an access credit, is interest-free and applies only to the purchase of a new home.
What are the eligibility requirements for the Accès Famille Program?
- Not having been a homeowner in the past five years;
- Purchasing a new single-family home or a new divided condominium;
- Respecting a maximum family income of $120,000;
- Repaying the loan in the event of a sale, refinancing, rental, or at the end of the mortgage term.
7. Refinance your mortgage
Mortgage refinancing is intended for individuals who are already homeowners and wish to purchase another property. When a mortgage is already in place, saving for a new down payment can be difficult, which is why this option may be appealing.
Refinancing involves renegotiating your current mortgage in order to free up cash. These funds can be used to consolidate debts or finance various expenses, including a down payment for a new purchase. It is also possible to use the property’s equity by taking out a collateral loan. However, this approach results in additional debt and can complicate financial management, as it involves having two debts secured by the property.
Before choosing this solution, it is strongly recommended to carefully assess your financial capacity. An excessively high level of debt could jeopardize mortgage pre-approval and put the purchase project at risk.
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