Buying a rental property with no money down in Canada does not mean financing 100% of the purchase. Lenders require at least 20% down on non-owner-occupied properties with one to four units, and no traditional mortgage product will move off that floor.1CMHC. CMHC Income Property What “no money down” really means is covering that 20% without pulling from your savings. Four strategies do this: borrowing against equity in a property you already own, having the seller finance part of the price, partnering with someone who has capital, or having a third party lend you their RRSP funds as a private mortgage. Each creates an obligation. None are free money. But any one of them can move up your purchase timeline by years.
Borrow the Down Payment From Home Equity
The most direct route is a Home Equity Line of Credit or a readvanceable mortgage secured against a property you already own. Under OSFI’s Guideline B-20, Canadian banks can lend up to 80% of a property’s appraised value in total secured lending, with the revolving HELOC portion capped at 65%. Any borrowing between 65% and 80% has to be structured as an amortizing loan with fixed payments.2Office of the Superintendent of Financial Institutions. Clarification on the Treatment of Innovative Real Estate Secured Lending Products under Guideline B-20
A readvanceable mortgage bundles a traditional amortizing mortgage with a revolving credit line under one product. As you pay down the fixed portion, the available credit on the revolving line grows automatically, giving you a pool of capital you can draw on without reapplying. The revolving portion charges a variable rate tied to the lender’s prime rate.3TD Bank. TD Home Equity FlexLine (HELOC)
The risk is real. You are adding debt against your home to buy another asset. If the rental sits vacant or the income falls short, you are servicing two obligations from your employment income. Lenders will also factor the HELOC draw into your Total Debt Service ratio when you apply for the rental mortgage, so the numbers need to work before you draw a dollar.
Ask the Seller to Carry Part of the Price
A vendor take-back mortgage is what it sounds like: the seller lends you part of the purchase price instead of demanding all cash at closing. You sign a promissory note and mortgage in the seller’s favour, register it on title, and make payments directly to them. Interest rates run higher than bank rates because the seller is taking on lender risk without institutional infrastructure. Terms are typically shorter, often one to five years, which gives you a window to build equity or improve cash flow before refinancing into bank financing.
The VTB almost always sits in second position behind the primary bank mortgage. The bank requires this subordination because it needs first claim on the property if you default.4Business Development Bank of Canada – BDC. Everything You Need to Know About Vendor Financing The rate, repayment schedule, and default terms all get written into the Agreement of Purchase and Sale. Each side should have their own lawyer review the clauses.
Sellers who agree to VTBs are usually motivated. Maybe the property has sat on the market too long. Maybe they want to spread a capital gain across multiple tax years. That motivation is your leverage. One practical hurdle: not every primary lender will approve a mortgage when a VTB is stacked behind it, and the VTB payment gets counted in your TDS calculation. A mortgage broker who has placed VTB-backed deals before is worth finding.
Bring in a Money Partner
A joint venture pairs someone with capital against someone with time and expertise. The money partner funds the down payment and closing costs. The working partner finds the deal, manages renovations, screens tenants, and handles day-to-day operations. Profit splits vary. Fifty-fifty is common. A working partner with a track record and a strong deal in hand can sometimes negotiate more favourably.
The joint venture agreement is where these arrangements live or die. It needs to cover how title is held, how profits and losses are divided, who covers capital calls if the roof fails, what triggers a buyout or sale, and how disputes get resolved. It should also specify whether the money partner’s contribution is treated as equity or a loan, because the tax treatment differs significantly. A handshake between friends might feel sufficient at the start, but vacancy, unexpected repairs, and disagreements about when to sell will test the arrangement. Legal counsel before signing costs a fraction of what litigating a failed partnership costs.
Use a Third Party’s Self-Directed RRSP
Under CRA rules, mortgages secured by real property are a qualified investment class for RRSPs. A third party can direct their RRSP trustee to lend you mortgage funds secured against the rental property you are buying. The key restriction is the arm’s length rule: you cannot borrow RRSP funds from your spouse, parents, siblings, or children. Aunts, uncles, cousins, and friends all qualify as arm’s length.
A trust company or financial institution must administer the mortgage on the RRSP holder’s behalf. The trustee collects payments, ensures the mortgage is registered on title, and routes interest back into the tax-sheltered account. Because these are private loans, the rate is negotiated between borrower and lender, and it usually runs higher than a bank would charge.
Getting this wrong is expensive. If a self-directed RRSP acquires a prohibited investment, the account holder faces a special tax equal to 50% of the investment’s fair market value, plus a 100% tax on any income earned from that investment.5Canada.ca. Tax Payable on Prohibited Investments Mortgages insured by CMHC or an approved private insurer are explicitly excluded from prohibited investment treatment, which provides some protection, but uninsured private mortgages have to be structured carefully.6Canada.ca. Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RRIFs, and TFSAs Both sides need professional advice: the borrower from a mortgage broker, the RRSP holder from a tax accountant.
You Still Have to Qualify for the Primary Mortgage
None of these strategies matter if you cannot pass the lender’s checks on the main mortgage. Lenders typically ask for at least two years of T4 slips, Notices of Assessment, and proof-of-income statements to confirm your earnings and that you do not owe back taxes.7Canada Revenue Agency (CRA). Mortgage Industry Consultation on a Potential Income Verification Tool A credit score above 680 is the usual threshold for competitive rates, and some lenders set the bar higher on non-owner-occupied properties.
Two ratios govern the qualification. Gross Debt Service measures housing costs against income and cannot exceed 39%. Total Debt Service adds all other debt payments and caps at 44%.8CMHC. Debt Service Calculator For rental applications, CMHC allows lenders to add up to 50% of expected gross rental income to your qualifying income, which meaningfully expands borrowing power.9CMHC. Rental Income
The Stress Test Applies
Every federally regulated lender in Canada must apply a stress test. You need to qualify at the higher of your contract rate plus 2%, or a floor of 5.25%.10Office of the Superintendent of Financial Institutions. Minimum Qualifying Rate for Uninsured Mortgages Rental properties always require uninsured mortgages, because insurance is only available up to 80% loan-to-value and you are already at that ceiling. So the stress test always applies. It cuts maximum borrowing power by roughly 20% compared to what the actual payment would suggest.
This is where creative financing gets tested. The debt from a HELOC, VTB, or private RRSP-funded mortgage all gets factored into your TDS at the stress-tested rate. Run the numbers through a broker before committing, so you do not discover midway through a deal that the second layer of financing has pushed you over the line.
Closing Costs Are Not Optional
Covering the 20% without cash does not cover closing costs, and those bills arrive whether you funded the down payment yourself or borrowed every dollar of it. Every province except Alberta, which charges a small flat fee, levies a land transfer tax calculated as a percentage of the purchase price. Rates range from 0.3% in Saskatchewan to tiered systems reaching 5% on high-value properties in British Columbia. Toronto adds its own municipal land transfer tax on top of Ontario’s provincial one, effectively doubling the bill for investors buying in that market.
Several provinces also impose speculation or vacancy taxes on residential property that is not occupied or rented. British Columbia’s speculation and vacancy tax applies in designated areas, and the rate for Canadian citizens and permanent residents rose to 1% for 2026. If you actually rent the property, these taxes should not apply. If it sits vacant between tenants for too long, or if you hold it for appreciation without leasing it, you could face a bill you did not budget for. Plan for legal fees, land transfer tax, and title insurance on top of the down payment itself.
Plan to Hold for at Least a Year
If you sell a residential property within 365 consecutive days of buying it, the CRA treats the entire profit as business income rather than a capital gain. Business income is fully taxable at your marginal rate, with no inclusion rate reduction. Life events like a job relocation, serious illness, or relationship breakdown can provide an exemption, but the rule is designed to discourage quick flips. Investors using borrowed funds for the down payment should plan to hold for at least a year regardless of how the market moves.
The Foreign Buyer Ban
If you are not a Canadian citizen or permanent resident, none of this applies to you right now. The Prohibition on the Purchase of Residential Property by Non-Canadians Act bars non-Canadians and foreign commercial enterprises from buying residential property in Canada. Originally set to expire in January 2025, the ban was extended to January 1, 2027.11Government of Canada. Government Announces Two-Year Extension to Ban on Foreign Ownership of Canadian Housing Permanent residents are not affected.