One of the biggest obstacles facing hopeful home buyers is often the daunting task of saving up a down payment. For years I barely kept my head above water paying my rent, bills and managing my debt, so the idea of putting aside thousands of dollars was effectively impossible at that time. When I began seriously tackling my debt last year, I was familiar with Nova Scotia Housing’s Down Payment Assistance Program, although I knew almost nothing about it. My plan at that time was to pay off my credit card then start saving for a down payment. In retrospect this would have taken over two years if I managed to keep up the momentum and the high level of sacrifice that came with those large debt payments, but frankly I probably would not have managed it.
I knew that a neighbour of mine had received his down payment from a down payment assistance program, and because I had an abundance of free time to research everything to do with buying a home, I decided to look into it further and see what my options were. I was happy to learn that I met or was close to meeting all the eligibility criteria:
- The property is in Nova Scotia. ✔ That was the plan.
- The applicant is a first-time home buyer. ✔ Yup, no question there.
- The applicant does not have the financial ability to pay 5% of the purchase price of the property without assistance of the program. ✔ I would say that’s a justifiable yes.
- The applicant is pre-approved for an insured mortgage by a recognized financial institution. ✘ I was going to have to get this part figured out before moving forward, but if I couldn’t get a mortgage I guess I wouldn’t need down payment assistance anyway.
- The applicant has a satisfactory credit rating. ??? What terribly ambiguous language! I had no idea what “satisfactory” meant. It was around 700 when I received conditional approval, so that is the only number I can confirm.
- The applicant has reviewed the educational material for first-time home buyers provided by Housing Nova Scotia. ✔ I read everything that seemed applicable, so that was done before I knew I had to.
- The applicant’s total household income is less than $75,000. ✔ Yup again.
- The applicant is a Canadian citizen or has permanent resident status. ✔ Sure am eh?
- The applicant has resided in Nova Scotia for at least 12 months. ✔ 6 whole years!
- The purchased property must be the applicant’s principal residence; rental properties, seasonal and recreational properties are not eligible. ✔ Definitely
- Mobile homes are eligible ONLY if they are permanently affixed to a property owned by the applicant. ✔ We had already ruled out a mobile home as an option for our family, and I am strongly opposed to paying a mortgage and rent (lot fees) on the same property.
Next I questioned if this was the best option, and these were my thoughts: This was a 5% loan to be used for a down payment, with 0% interest. I’m paying 12.99% on my credit card, so 0% sounds great. It would free up my cashflow to continue paying down my credit card which would save me money on interest as well as continue to improve my credit score and debt ratios, making me a better candidate for a mortgage, and likely helping me to qualify for lower interest rates.
There are a few downsides to down payment assistance. It was much harder to qualify for this loan than for my entire mortgage. You need to submit tax info, a letter from your employer and a signed affidavit among other things, which could potentially take weeks to acquire. You also need a purchase agreement and a mortgage pre-approval, so you can’t qualify until you’re already in pretty deep, so being denied at that stage would be very disappointing and demoralizing. It is also not just a loan, but actually a second mortgage on your home, which essentially means if you fail to pay it back Housing could potentially take your house. I generally advise always paying your bills to prevent such issues in the first place.
There are a few other things I felt worthy of mention here. First, you have 10 years to pay it back and can defer for the first year. It took about a week (but could be longer) to get approved, so make sure you leave enough time in your Purchase Agreement to meet that condition. The loan is only for your 5% down payment and you will still need the money to cover your closing costs. It takes several days to transfer the money from Housing to your lawyer, so make sure your lender is on the ball with communicating to Housing on time(I ran into problems here). Lastly, the Canadian Mortgage and Housing Corporation (the largest provider of mortgage insurance, which is required on all mortgages with a down payment of under 20%) require down payments to not come from a loan, but don’t worry, there are alternative insurers which your lender will arrange for you.
If a down payment assistance loan seems like an option that could work for you, I suggest making sure your mortgage broker or lender is familiar with this program, because they will have to coordinate with each other. Make sure your taxes are up to date and you can access your notice of assessment and procure the other supporting documents in a timely manner. Thoroughly read the Fact Sheet and Educational Materials (here and here) to fully understand the requirements before applying, and Stay Strong! because this was one of the more stressful parts of buying my first home.