How to Save For A Down Payment

by | Nov 16, 2020 | Personal Finances | 0 comments

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
  • Inheritance
  • 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
  • Disbursements
  • 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.

Using mortgage calculators can really help in the planning process. As well, our Mortgage Planner App has some excellent tools including closing cost estimators and land transfer tax requirements.

For more information please email [email protected] or book a no obligation consultation – Let’s chat.

 

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