Buying your first home can be a huge undertaking; researching the Barrie market, working out a budget, understanding the different financing options & knowing where to get help picking the “right” property. In my experience, I’ve found that buyer’s don’t truly know their down payment options. I’ve got five options that can either; save you thousands of dollars in mortgage default insurance or opportunities that will allow you to get into a home sooner than you thought.
The first option is waiting until you have a sizable down payment before you buy a house. If you are able to save up at least a 20% down payment you can avoid paying mortgage default insurance. This premium is required if you have less than a 20% down payment and can equal up to 2.75% of the purchase price. On a $300,000 home this can add $8,250 to your mortgage principle.
The second option is obtaining your down payment in the form of a gift. The Canadian mortgage rules allow a parent or direct relative to provide a home purchaser with a portion or full down payment on the home. The rules require that there is no future repayment required. Do note that if your full down payment is in the form of a gift you are still required to accumulate your closing costs (lawyer’s fees, tax on default premium, etc.) from your own funds. Lenders require that you have at least 1.5% of the purchase price available for the close.
The third option is applying for a cash back mortgage (no money down mortgage), where the lender provides the 5% down payment for you. While this can be a more expensive option, you will generally pay a higher interest rate, it might be the assistance necessary to get into your own house soon. As of July 2012, banks are no longer allowed to offer this option. Mortgage brokers have access to provincially regulated lenders who are able to still offer this type of product to well qualified applicants (good credit & solid job/income).
The fourth option is a co-signer. If for some reason you are unable to qualify for your own mortgage (poor credit, self-employment, etc.), this can be a good option. Generally parents are a solid candidate for this, looking to assist their son or daughter get a leg up early in their adult life. Keep in mind that in most cases the parent will need to be “assigned to title” in the beginning but can eventually be removed from title after a consistent mortgage payment history is established.
The fifth option is applying for a down payment grant. Recently the County of Simcoe has offered a Homeownership Grant Program that provides a 10% down payment in the form of a forgivable loan. These programs are normally quite competitive and there are a number of conditions tied to them but for the right candidate this can be an excellent option.
Don’t hesitate to contact me for a more detailed explanation of one of the above topics [(705) 737-6161] or better yet, set an appointment at my Barrie office (99 Bayfield St.) to completely review your mortgage scenario.