For those of you who don’t know, your down payment is the amount of money you need to put down on your new home. Once you have determined your budget, you will have an accurate idea of the final cost of the home you can afford and what you will be intending to spend. This will allow you to estimate your down payment and start saving!
The ideal down payment for purchasing a home is 20%. However, we understand in today’s market that is not always possible. Therefore, it is important to note that any potential home buyer with less than a 20% down payment MUST purchase default insurance on the mortgage, and they must have a minimum down payment of 5%. For example: If your budget for purchasing a home is $500,000 then you would be looking to produce a down payment of $100,000 ideally or $25,000 minimum with insurance.
If your budget is over $500,000, keep in mind the minimum down payment will be 5% for the first $500,000 and 10% for the remaining portion. If you end up purchasing a home that is over $1 million, you will be required to put 20% down.
SOURCES OF DOWN PAYMENT
The down payment on your home could come from your own savings such as a savings account or RRSPs. Thanks to the federal government’s Home Buyers’ Plan, potential first-time home owners are able to leverage up to $35,000 of your RRSP savings ($70,000 for a couple) to help finance the down payment. A gift of a down payment from an immediate relative is also acceptable.
Quick Tip: If your down payment comes from TFSA or RRSP, the bank will want 90 days of statements to ensure the funds are accounted for. Gifted funds rarely require 90 days of proof.
It is always a good idea to check with a Mortgage Professional for qualifying criteria and availability to ensure your source of down payment is eligible.