Kam Shaw

So, how much is a down payment on a house, anyway? The purchasing process usually starts years before the actual purchase, because thats how long it can take to save up for a down payment, depending on where youre planning to buy a home, your income and expenses, and of course, the home price. In Canada, when the purchase price is $500,000 or less, the minimum down payment is 5%. For homes priced over $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. According to the latest data from the Canadian Real Estate Association,the average home price in Canada in August 2021 was $663,500. At this price, the minimum down payment would be$41,350 (5% of $500,000, plus 10% of $163,500) A20%down payment the minimum amount needed to avoid paying mortgage loan insurance is$132,700. Think about that. How long do you think it would take you to squirrel away $100K? Keep in mind that this is the national average, but a down payment on a house in Ontario can vary dramatically from one in BC or PEI. Working with an experienced real estate agent can help you navigate your local market. In the meantime, here are some things to think about as you plan for your home purchase. What is a Down Payment? A down payment is the amount of money paid up-front as a lump-sum when you buy a home. The amount of the down payment is deducted from the overall price of the home, the balance of which is covered by a mortgage loan. Is a Down Payment the Same as a Deposit? Some people confuse the deposit and the down payment. Think of the deposit as a down payment on your down payment. The amount is typically around $10,000 but can vary depending on how serious you are about buying the home, and the price. The deposit comes in the form of a certified cheque or bank draft with the Offer to Purchase.This deposit will be deducted from your required down payment amount. There is a lot to know about buying a home before you dive in. Lean on your team of real estate professionals to ensure youre aware of all the requirements and the options available to you. Your financial advisor, lawyer and real estate agent know the ins and outs of the purchasing process, so you dont have to navigate this road alone. How is a Down Payment Calculated? When youre buying a home, the down payment is calculated as a percentage of the total purchase price. The higher the price, the higher the down payment. You can plug in some numbers into a house down payment calculator found online, to get an idea for how much youll need to save up. Minimum Down Payment Requirements For homes priced below $500,000, the minimum down payment required is five percent. For homes prices between $500,000 and $999,999, the down payment is five percent of $500,000 plus 10 per cent of the remaining amount. Keep in mind that these are the bare minimums required to qualify for a mortgage, however anythingbelow 20 per cent is a high-ratio mortgage and requires mortgage default insurance. This protects the lender in case the borrower defaults on payments. Your mortgage loan insurance can be paid for upfront or added to your monthly mortgage payments. Is it Better to Put a Large Down Payment on a House? A bigger down payment now leaves more money in your pocket. Weve already established that buyers who have 20 per cent or more to put down on their home wont have to purchase mortgage default insurance. From a long-term perspective, when your down payment is bigger, your mortgage loan will be smaller and at the end of a typical 25-year mortgage amortization, youll be paying less in interest. How to Save for a Down Payment For homebuyers in many of Canadas pricier housing markets, saving that down payment can be the biggest obstacle to home ownership. Its true that an average income in cities like Toronto and Vancouver may be higher, but so too is the cost of living, leaving less to tuck into a savings account. If youre planning to purchase a home in the future, start saving as soon as possible. Time is on your side. Step 1 is to set a savings goal. Its always easier to stick to it when you have a specific target. Next, set up an automatic withdrawal on every pay day. Youll build your down payment fund without even noticing this small reduction in your take-home pay. Curb all optional spending. This means home-cooked meals, brewing your own morning coffee, stay-cations, and borrowing instead of buying. Itll be a lifestyle change, but will save you money and bring you closer to your goal of home ownership. The Government of Canada offers some programs and incentives to soften the financial blow for first-time homebuyers. The Home Buyers Plan lets first-timers borrow up to $35,000 from their Registered Retirement Savings Plan, to put toward their home purchase. If there are multiple first-timers purchasing the property, they can each borrow this amount. Ensure youre aware of the repayment requirements. Also worth noting and new as of September 2019, first-time homebuyers now have theFirst-Time Home Buyer Incentiveat their disposal, to help reduce their monthly mortgage payments without increasing their down payment amount. The FTHBI is an interest-free, shared-equity mortgage that must be repaid when the home is sold or after 25 years whichever comes first. The government shares in any gains or decreases in property value. Go back to blog

There are many factors to consider when choosing your mortgage type for the first time. Rates, features, options, market trends, and long term goals should all be taken into account when choosing your mortgage. Below we have outlined some of these important considerations. First Time Buyers Purchasing your first home as be an exciting yet scary process. Knowing where to start can make that process a little bit easier. First off, if youre reading this youve already taken the first step. Understanding how you qualify for a mortgage and what you can afford will help you make a more informed buying decision. We encourage you to read the other Resource sections for information about qualifying for a mortgage. Steps in the home buying proceess: Step 1 Determine what you can afford and qualify to purchase: Your mortgage advisor will be looking at your income and down payment to determine this and get you a pre-approval. Step 2 Connect with a realtor: Using a realtor can making finding the right home easier. Realtors have access to information and insight into the housing market that can aid your search. Step 3 Make an offer to purchase: Once you have found a property, you will make an offer on the property with your realtor. Be prepared to negotiate back and forth a few times. You will need do give a deposit with the accepted offer. This deposit will count towards your down payment and closing costs. Step 4 Convert your pre-approval to a full approval: Once your offer is accepted, make sure your mortgage advisor has a clear copy of the purchase agreement and MLS listing. They will use this information to get you a full approval from a lender. An appraisal might be require dby the lender. Step 5 Signing mortgage documents: Once your mortgage advisor has collected the required documents to meet the lenders approval conditions they will meet with you to sign the mortgage commitment documents. The required documents will be sent back to the lender who will then send mortgage instructions to your lawyer. Step 6 Signing with your lawyer: The lawyer will prepare the mortgage and registration documents once they have received the insturctions from the lender. You will then meet with the lawyer and sign the documents with them. Step 7 Get your keys move in: Once the lawyer has received the funds from the lender and completed the registration on the title and mortgage they will contact you to let you know that you can pick up your keys. First Time Buyer Benefits As a first time buyer have 2 major benefits. The Home Buyers Withdrawal Plan allows you to withdraw money that you have contributed to your RRSP up to a maximum of $25,000 to use towards the purchase of a qualifying home. The funds have to be repaid to your RRSP over a 15 year period starting 2 years after the withdrawal. For more information on the Home Buyers Withdrawal Plan visit the Government of Canadas website. Home Buyers Withdrawal Plan link The other major benefit is that of the land transfer tax rebate. You can get more information about the land transfer tax from the Government of Ontarios website. Land Transfer Tax Rebate link Go back to blog