Saving for a down payment to purchase a home can be a challenge. There are a few potential sources of down payment that are recognized by mortgage lenders. If you’d like to discuss options in greater detail, let’s connect for a quick chat to run through your current situation.
How much should I save for a down payment?
The minimum required down payment for a home purchase value of $500,000 is 5% of the asking price. For purchase prices greater than $500,000, additional funds equal to 10% of the value above the initial $500,000 are required. For example, a purchase price of $600,000 would require 5% on the first $500,000 (or $25,000) plus an additional 10% on the remaining $100,000 (or $10,000). Therefore, the total required down payment would be $35,000.
Please note that while this illustrates a potential minimum down payment scenario, borrower’s income and debt load must be enough to support the desired purchase price in-line with maximum affordability ratios.
How can I save for a down payment fast?
Accumulating a sizable down payment can take some time. If you need to save fast, consider these options:
- Cut back on expensive eating out! Start cooking from home.
- Pay off credit card balances as fast as you can and keep credit card debt low.
- Utilize the Home Buyer Program to access funds from your Registered Retirement Savings Plan (RRSP)
- Sell an asset like a boat or vehicle
- Work more overtime or get a part-time job.
What are the recognized sources of down payment?
The following list of some of the most common sources of down payment:
- Personal savings
- Gift from immediate family members
- Sale of assets
- RRSP funds
What are other costs I need to save?
Lenders will ask for proof of 1.5% of the purchase price in addition to the required down payment to cover closing costs. For a First Time Home Buyer this amount should be sufficient to cover the actual cost (factoring in the Land Transfer Tax rebate). For buyers that have previously owned a home, it is likely that more than 1.5% will be required. This is due primarily to the Land Transfer Tax.
Typical closing costs include:
- Lawyer fee
- Land Transfer Tax
- Municipal Tax Adjustments
- Title Insurance
- GST on default mortgage insurance
As well, buyers may be required to incur costs for a property appraisal, home inspection, septic tank inspection, water test for properties with wells. For condominium purchases a Status Certificate may be required.