Is There Really Zero Down Mortgages?

Yes if you could find someone such as your parents or friends to lend you 100% of the value of the house. Voila that is zero down. But this is extremely hard to come by for many borrowers.

Next try the banks, credit unions and private mortgage lenders. Do they offer a zero down program. Yes possibly.

The way they will structure a zero down mortgage is as follows:

Scenario I: they may offer two separate mortgages. One conventional mortgage for 80 percent of the market value of the house and then a second mortgage or line of credit for the remainder twenty percent. In this case there is no requirement to buy mortgage insurance. This can save you quite a bit on insurance fee.

Scenario II: they may offer one single high ratio mortgage. High ratio mortgage is a mortgage for 81 percent up to 100 percent of the house market value.

That's sounds too good to be true. But it is true. There are however certain conditions to be fulfilled:

Firstly, the mortgage needs to be insured. There are two major mortgage insurance companies in Canada. the Canada Mortgage and Housing Corporation (CMHC) - a Canada Government corporation, and

Genworth Financial- a public corporation. They will charge you a premium for the mortgage insurance from 0.5% to 3.1% depending on the ratio of borrowing to the value of the property. The higher the ratio the higher is the premium. You do not have to deal with the insurance providers as the mortgage lenders will do all the paper work for you. It is hassle free as far as you are concerned.

It is interesting to note that the interest rate on insured mortgages is the same rate as the mortgage rate on conventional mortgages. In other words you are not paying an arm and a leg in interest.

Secondly, the lenders want to make sure that you will be able to make all your monthly debt repayments, including the mortgage, credit card, car loan, consumer loan etc. You have to show to them that you have a proven track record of properly managing your debt obligations.

The lenders will also assess your job and salary and make sure as far as possible that your job is a good steady permanent job and your salary is high enough to fulfill all your monthly debt repayments.

If the above sounds like you, you have a good chance of being approved for a zero down mortgage.

The lenders will also assess the location and type of the property you are purchasing and make certain that it is in a high demand area of the city. They want to make sure that they can sell the property easily in case of default by the borrowers. They also believe that the value of the property will likely go up year by year. Same time next year hopefully some equity would have been accumulated in the property.

We are lucky that in Canada there has been little problem with high ratio mortgages. But in the States last year several high profile sub-prime lenders have got themselves in hot water for lending too aggressively to high risk borrowers. Billions have been lost but that's their problem.

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