Do you need a down payment?
The simple answer is yes. The minimum down payment required on an owner occupied home is 5%* of the purchase price. The amount is easy enough to calculate. What's often a bit more complicated is how to come up with such a large chunk of money while still living your life. Here are a few ideas on how to obtain your down payment:
- Save, Save, Save: The most straight forward way is through good, old fashioned, savings. A TFSA is a great vessel to save and invest (your gains are tax free). Most financial institutions will automatically take money out of your bank account and transfer it into a TFSA or regular savings account every month. Automatic payments are really helpful because it just becomes very routine after a couple of months and you don't have to do anything; it's automatic so you might be less inclined to skip your savings for a month because something else came up. Setting aside a monthly chunk of your income for your future home requires a lot of discipline, and giving up some wants, but in the long-term it will be worth it!
- RRSP Home Buyers Plan: If you have an RRSP (some people even have employer contributed RRSP`s that can be used for this program) you can use them for a down payment! You must be considered a first time buyer and your RRSP`s must have been in your account for over 90 days. If you meet the requirements for the program, you`re able to withdraw up to $25,000 tax free! This is a fantastic program for first time buyers. Another great strategy is to take out an RRSP loan to purchase a set amount of RRSP`s. It will force you to save as you make your loan payment every month. Not only will you get a tax refund (which you can plunk down on your RRSP loan) but you`ll end up with a nice chunk of RRSP`s which you can withdraw to buy a place of your own. For more information on the program, please go to: http://www.cra-arc.gc.ca/hbp/
What if you've tried the above methods and you're still struggling to get the required 5% down payment together? Don’t despair! Here are a few different options available to individuals that do not have a down payment.
- Borrow It: If you have room in your ratios (income vs. debts) you may be able to just borrow your down payment from a credit card or a personal line of credit. One thing to keep in mind with this option is that along with your new mortgage payment you`ll also have another additional monthly payment to pay off that loan. If, after completing the application process, this program seems like it will be a good fit for you, I can set you up with a few financial institutions that would be happy to set up a personal line of credit for you to use for your down payment.
- Ask for a gift: Do you have parents or immediate family members that may be willing to help you out with your down payment? Perhaps you are uncomfortable about bringing this up with your parents or siblings. Money can be a tricky subject in families but you know, it never hurts to ask. Maybe you assumed your parents weren`t willing to help. Whether they are or aren`t this might be a good opportunity to open up some dialogue on the subject.
For more information, please contact me, or read my handy buyers guide!
*Applies to residential mortgages only and some conditions may apply. O.A.C., E.O.E All content is subject to change without notice.