How much of a down payment should I save?
The minimal amount for a down payment, dependent on circumstances is 5% of the purchase price of a home. That said, you should typically have 10-15% and the more of a down payment you have, the more money you save and you own your home a lot faster. If you have 20% or more, you are not required to purchase Mortgage Default Insurance.
Where do I start?
When looking for a 1st time home buyer mortgage, it depends on if you have the money for the down payment. So we will assume it is a really fresh start and you don’t have anything saved.
- Find out the status of your credit score. If it’s good, make sure you make a conscious effort to keep at a good credit score, but if it’s not so good, consult a financial advisor or talk to your bank on how you can improve your score and start from there.
- Find out how you are willing to pay for a home. You can start with just scouring your neighborhood, checking listings online and start reading real estate news items. You may want more house or acreage, so don’t limit yourself to one area if you live in an area where market values are high.
- Find out how much of mortgage you require. By using our Amortization Calculator, you can enter your desired monthly payment, number of payments and find out the loan amount you require. Try different scenarios to see what you are comfortable with. If you are planning on getting married or having a partner in the future, don’t take that into consideration when factoring how much you can afford per month, if there is a second income in your future, that just means you just pay the mortgage off faster.
- Start saving and looking into ways to get save and get your down payment quicker.
- About 6 months before you have your down payment and armed with questions and some knowledge, get a good mortgage broker and start the process to get Pre-Qualified, Pre-Approved and then Approved.
What is Rent to Own and who offers it?
Rent to own, also referred as Lease Option Homes, is a way for people who do not financially qualify for a mortgage or do not have the down payment, to obtain a home through leasing.
How it Works – A house or condo is listed as a Rent to Own, the deposit is higher than average for rentals, usually 1-2% of the value of the property that goes towards the payment of the property but is non-refundable. You still need good credit and will go through a credit check. You would sign an extra lease and a purchase agreement. You then would pay rent plus a rent credit. Beware, if you do not purchase the property at the end of the term, you lose both the deposit and any rent credit you have paid. We will be writing a blog on this shorting so check out our blog section for great information for first time home buyers. Some people fear they would not qualify for a mortgage and never try, but a good mortgage broker can answer all questions and if you don’t qualify for a mortgage today, they can let me know how to start working on your dream of owning a home.
Should I keep Renting or Purchase a home; is there really a savings?There are many factors involved in this decision. You may be paying less per month renting but you will eventually own a home outright. If your heart is set on being a homeowner, there is no question other than can I afford to own a home.
How do I go about getting a down payment?
There are many ways to invest your money for a down payment, but unless you are a risk taker, you may prefer a safer method, but remember, saving for a down payment takes time. Here are just some great tips to save.
- Dividing your income into 3. The give a little, get a little and save a little rule goes a long way to get you the mortgage down payment you require.
- Start educating yourself on the cost of Real Estate where you potentially want to live and find a comfort zone to what you would be comfortable paying per month (include the mortgage rate) and calculate 5 % more than the minimal down payment. Take that number and spread it out over the period of time you want to wait before purchasing your home.
- Become a weekend detective – Start looking for small ways to start saving money, for example couponing, calling credit card companies for lower rates, shop for better phone and internet rates. Start asking your friends and family questions on how they save.
What are some ways to save for a down payment?
- Bank Accounts (Chequing or Savings)
- Canada Savings Bonds and Guaranteed Investment Certificates (GICs)
- Stocks, Bonds, and Other non-registered investments
- Tax-Free Savings Account (TFSA)
- RRSP – The Home Buyers’ Plan
- Gifts from Family or Friends (let them know how much you want to purchase and open an account and any gifts ask to be a small contribution)
Should I take more time and save more for my down payment or just save for the minimal down payment amount?
The more the down payment, the less risk you take. If you obtain a mortgage with a low down payment, it is usually a higher interest rate but you may be saving on other things like high rent. This is a question where you want to educate yourself and find out all the various scenarios, look for Real Estate news and learn more about Real Estate Market and Interest Rate forecasts. We have various mortgage calculators to assist you and you can also get the advice of a Mortgage Broker or Agent. This is one time you want to make sure your head and your heart are happy with your decision.
What is Flex Down vs Cash Back Mortgage?
Flexible Down Payment Options – If this is your first mortgage and you have a small down payment of 5%, a Flexible Down Payment allows you to purchase a home if you can’t come up with more than 5%. Most brokers or banks will look for an excellent credit and work history. A mortgage broker will be able to answer all your questions regarding Flex Down.
Cash Back Mortgage – Cash back is an option which allows you to get a percentage of your mortgage right away so you have funds, for example, pay various fees, renovations. In exchange you may have a higher interest rate and some restrictions may apply so speak with your Broker.