Have you been saving for a down payment? If you have, you’re likely aware that it’s not an easy feat, especially when you are balancing other obligations like paying rent, paying down student debt or putting money in an emergency fund…or even saving for your retirement.
What you might not know is that there are options available when it comes to saving up for your first home. These include:
Your first option is to go with a conventional mortgage, which will fund 80 percent of the purchase price of your home. This means that you will need to come up with the other 20 percent for the down payment. Although that might certainly sound like a lot of moola, there are definite advantages to going with a conventional mortgage. The more money you put down, for example, the less money you’ll need to pay in interest. A conventional mortgage also means that you will not need to pay for mortgage insurance through CHMC.
Low down payment / insured mortgage
Let’s get real here – 20 percent down is quite a bit of money. If saving 20 percent is a little out of reach, you might be better off to look into a low down payment or insured mortgage. As the name suggests, a low down payment mortgage involves a down payment that is less than 20 percent of the overall purchase price (although new Canadian regulations stipulate that you must put at least 5 percent down). Keep in mind, however, that this type of mortgage loan means you will eventually pay more in interest. It also means that you will need to pay the fees associated with mortgage insurance.
RRSP as down payment
You may not be aware, but if you are a first-time home buyer, you may qualify for Canada’s Home Buyers’ Plan. Essentially, this plan allows you to borrow money (to a maximum of $25,000) from your RRSP to put towards a down payment on your home.
In order to qualify and utilize your RRSP as a down payment, there are a few criteria that you must meet. You must not have owned a home in the last five years and you must also be able to repay the amount of the money borrowed within 15 years. For more information about the Home Buyers’ Plan and to see whether you qualify, check out this link.
Although there are different down payment options to choose from, the most important thing to consider before going ahead with any of them is whether you are really financially ready for the responsibilities and costs of home ownership. It’s also important to be mindful of the new mortgage regulations that require mortgage applicants to pass a mortgage ‘stress test’. If you’re not quite there, it just means that you may need to wait a little longer and continue saving your money until the time is right. Don’t give up – home ownership is worth the effort!
As a mortgage broker in Barrie, I love working with my clients to find the perfect mortgage. Whether conventional or insured, if you are ready for home ownership, there is a mortgage solution for you and I can help you find it. Connect with me today by calling (705) 315-0516.