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September 2008 - The problem of buying a house without down payment

The problem of buying a house without down payment

☳ by Adam Aspilla

It is good to realize a dream of buying a house of your own instead of renting throughout your life. However, buying a house without a down payment is not for everyone. For others it is good and for others it is a problem.

To accommodate home buyers without down payment, lenders design a special financing package (credit requirements). For those with stable employment, above average income, good credit rating could purchase a house with 100% financing – that is without down payment. 

For those home buyers, without down payments who meet the above credit requirements would likely not encounter a problem of defaulting their mortgage payments.

On the other hand for those who do not meet the credit requirements, would likely default their mortgage payments and at the end their house would be taken by lenders through power of sale.

Case in point was a couple who purchased a house without down payment. They said couple did not meet the credit requirements outlined above but they seek help from an agent who packaged their mortgage application to make it appear that they met the requirements for 100% financing.

It did not take long they defaulted their mortgage payments and ultimately lost their house as the lender issued power sale.

Not only they lost their house, but they also forfeited all their payments made and to top of it the house was sold at below market value as it was sold under power of sale. As a consequence, the  proceed of sale was not enough to pay their outstanding mortgage balance and property taxes in arrears. The shortfall amounted to $40,000.00.

The insurance company who paid the lender for the shortfall demanded payment from them for the full amount of the shortfall plus interest. Without money to pay, they filed bankruptcy.

Not only their dream of owning a house was shattered, but their credit rating also went down the drain, they even had difficulty renting an apartment because of bad credit.

It is good to own a house, but lenders establish credit requirements for reasons, one of them is to prevent you from defaulting your mortgage payments so you could keep your house. 

To avoid the problem experienced by the above couple, in realizing your dream to own a house, make sure that in arranging your mortgage financing you  honestly meet the credit requirements much more if you are buying without down payment.


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.