How To Get a Home with 0 Down in Canada (for first time home buyers)
You will need the following to do this:
Be a first time home buyer
LofC (preferably 25k min)
Contribution room in RRSP
Up to date Tax with Revenue Canada
Be paying taxes equal to down payment (higher bracket the better)
Background:
My wife (gf at the time) and I were interested in buying a house. We had just finished paying off our revolving debt (still had Student loans and car loans), and were earning middle class incomes. We figured it would take about 2 years to save enough for a down payment in the GTA. This was in 2014.
I instantly began studying the housing market to make sure it was a reasonable time to buy, and began to realize that the price of a house in Canada had fell about 30% in USD due to the drop in the CAD. It stood to reason that this was a short term adjustment that resulted from the unexpected rate change that occurred. And that this would balance out in the short to medium term. I knew that we planned to save in USD, and this meant that anybody else that was in the same boat, but started saving a couple of years earlier would have much more CAD to buy now that their USD portfolio was worth approx 30% more.
I began to think that we may have to rush and buy slightly sooner than we had planned. But we had no money, although we had plenty of cash-flow. When reviewing different aspects of mortgages it dawned on me that we may be able to put a down payment on the house that we didn't yet have.
My Approach:
I'm sure I'm not the first to have thought of this idea, but I haven't come across much info on the web outlining the idea, so I decided to share my experience here. My wife and I took out loans from our LofC (which were now paid off). We instantly transferred this money into our RRSP. We then proceeded to file our taxes. We then went house shopping and picked a house. Once we finalized the deal on the house and got withing 89 days of closing we took the money out of our RRSP and paid off our LofC (we owed a little extra in interest but the amount was negligible... we also earned some interest in our RRSP and I made some gains but that is an entire different post). we were now square with our banks having paid off our LofC.
Due to our contribution to our RRSP, we received large income tax returns. These returns were more than sufficient to cover the down payment and most of the closing costs associated with purchasing the house. The remainder of the expenses were covered with cash (although the LofC was an option) as we had been saving for the 6 months since we decided to buy.
Keep in Mind:
Timing is crucial for this approach to work. You need to line the approach up with when you do your taxes. You have to keep the timeline for withdrawing form your RRSP (under first time home buyer plan).
Best of luck to any future home buyers.
Dahlsom
