There is so much misinformation out there in the market place to day around the down payment requirements when you purchase a new home so lets have a virtual discussion around the topic.
No, I cannot magically create or make it look like you have a down payment when you dont, that is called mortgage fraud and I could lose my license if I did such a thing.
No, you do not require 10% down if this is your second or third or forth home purchase.
No, banks will not provide you with a cash back incentive and allow you to use it as the down payment, that program died a while ago when new rules were brought down by the federal government.
No, the seller of the house can not gift you or lend you the down payment however if the seller is immediate family they may be able to gift you 5% equity.
No, you can not borrow the money from a friend.
So what can you use for a down payment and how much do you need?
If you are looking to buy an owner occupied home that is 1 or 2 units then you only need 5% down unless the lender feels the deal is too weak and more of a down payment could mitigate the weakness in the application. That 5% down can come from various places such as your personal savings, your Registered Retirement Plan, the sale of an asset, a non repayable gift from an immediate family member or you could borrow it from your line of credit, or credit card. Lenders are under very strict guidelines when it comes to providing a paper trail of this money and this is due to the Anti Money Laundering and Terrorist Financing Act so be prepared to answer a lot of questions and provide a lot of paper.
When you are getting a gift from immediate family that person or persons will be required to sign a gift letter stating that the gift is non repayable and who do lenders deem to be immediate family? Well it can be parents, grandparents, and siblings, that is it. Aunts, uncles, girlfriends, in laws, cousins, spouse, these people do not fall under the immediate family guidelines and while some lenders will grant an exception it is not a guarantee that they will allow these people to gift you the down payment.
So when it comes to the strength of the down payment lenders give more points to the application if the source of funds is coming from your savings, RRSP or sale of an existing asset, fewer points are given if it is a gift and not many points given at all if you are looking to borrow your down payments. If you are starting a new job, have weak credit and are currently carrying quite a bit of debt the likely of you getting approved for a mortgage with a borrowed down payment is slim to nil. Lenders really like to see that your savings habits have been established and that you have the discipline to budget, manage your revolving credit well and save money. Please call me if you would like to discuss your individual situation because everybody has a different story and there are exceptions to every rule.
To help make homeownership more affordable for first-time home buyers, Budget 2019 introduces theFirst-Time Home Buyer Incentive.
The Incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (CMHC).
It is expected that approximately 100,000 first-time home buyers would be able to benefit from the Incentive over the next three years.
Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a 5 per cent down payment and a 10 per cent CMHC shared equity mortgage ($40,000), the borrowers total mortgage size would be reduced from $380,000 to $340,000, reducing the borrowers monthly mortgage costs by as much as $228 per month. Terms and conditions for the First-Time Home Buyer Incentive would be released by CMHC.
CMHC would offer qualified first-time home buyers a 10 per cent shared equity mortgage for a newly constructed home or a 5 per cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.
The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time home buyers with household incomes under $120,000 per year. At the same time, participants insured mortgage and the Incentive amount cannot be greater than four times the participants annual household incomes.
Budget 2019 also proposes to increase the Home Buyers Plan withdrawal limit from $25,000 to $35,000, providing first-time home buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.
Bank of Canada maintains overnight rate target at 1 ¾ per cent
The Bank of Canada today maintained its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 2 per cent and the deposit rate is 1 per cent.
Recent data suggest that the slowdown in the global economy has been more pronounced and widespread than the Bank had forecast in its January Monetary Policy Report (MPR). While the sources of moderation appear to be multiple, trade tensions and uncertainty are weighing heavily on confidence and economic activity. It is difficult to disentangle these confidence effects from other adverse factors, but it is clear that global economic prospects would be buoyed by the resolution of trade conflicts.
Many central banks have acknowledged the building headwinds to growth, and financial conditions have eased as a result. Meanwhile, progress in US-China trade talks and policy stimulus in China have improved market sentiment and contributed to firmer commodity prices.
For Canada, the Bank was projecting a temporary slowdown in late 2018 and early 2019, mainly because of last years drop in oil prices. The Bank had forecast weak exports and investment in the energy sector and a decline in household spending in oil-producing provinces. However, the slowdown in the fourth quarter was sharper and more broadly based. Consumer spending and the housing market were soft, despite strong growth in employment and labour income. Both exports and business investment also fell short of expectations. After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January.
Core inflation measures remain close to 2 per cent. CPI inflation eased to 1.4 per cent in January, largely because of lower gasoline prices. The Bank expects CPI inflation to be slightly below the 2 per cent target through most of 2019, reflecting the impact of temporary factors, including the drag from lower energy prices and a wider output gap.
Governing Council judges that the outlook continues to warrant a policy interest rate that is below its neutral range. Given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook. With increased uncertainty about the timing of future rate increases, Governing Council will be watching closely developments in household spending, oil markets, and global trade policy.
The next scheduled date for announcing the overnight rate target is April 24, 2019. The next full update of the Banks outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.