You’re ready to buy a house. You’ve lowered your debt, you’ve been saving for a down payment for a while, and you’re finally ready to take the next step in buying your first home. When buying a house, the down payment is one of the biggest upfront expenses you will have to pay. The more you put towards your down payment, the less you will pay in fees and interest over the lifetime of your mortgage. So, how much of a down payment do you need to buy a house? Do you have enough saved to secure the mortgage you need?
Understanding down payments
Let’s start with the basics. A mortgage down payment is a lump sum of money you pay upfront when purchasing a house. The amount of your down payment can impact how much of a mortgage you get approved for. It helps a lender determine how much of a mortgage loan they can approve you for and what type of mortgage is best for you. Your down payment is deducted from the overall purchase price of the home, and the balance remaining is lent to you in a mortgage loan.
Minimum down payment requirements
Once upon a time, a 20% down payment was the standard when purchasing a house, but this is no longer the case.
Your minimum down payment now depends on the value of the home you purchase.
Let’s break it down:
- If the purchase price of your home is $500,000 or less, you need to have a down payment of at least 5%.
- If the purchase price of your home is between $500,000 – $999,999, you will need 5% of the first $500,000 of the purchase price, and then 10% for the portion of the purchase price above $500,000
- If the purchase price of your home is over $1 million, you are required to have a down payment of at least 20%.
If you are self-employed, you may be required to supply more of a down payment depending on your specific situation and supporting documentation of income. To learn more about how being self-employed affects your mortgage application, check out one of my earlier articles here for more information.
Is it better to put a larger down payment down on a house?
The bigger your down payment is, the more money you save long-term in interest and other fees. A larger down payment will also put more equity in your home right away and will allow you to qualify for lower monthly mortgage payments.
However, paying too much for a down payment can have a negative impact on your finances and your savings. If putting a larger down payment on a house is going to strain your finances, you should reconsider how much you want to put down. You don’t want to exhaust your cash flow unnecessarily if you can avoid it.
Keep in mind that your down payment is not the only expense you will need to worry about when buying a house. You will also need to factor in closing costs, moving expenses, insurance costs, and your other monthly bills.
So, is it better to put more towards your down payment? Yes, but only if you can afford it without putting yourself in financial jeopardy. You don’t want to be mortgage broker before you even move in.
What is the best tactic to save for a down payment?
In today’s real estate market, the biggest challenge Canadians have to face when getting approved for a mortgage is having enough saved for a down payment. Are you realizing that you may not have enough saved for your down payment? Don’t fret! There are many ways you can continue to save for a down payment to reach your goal of homeownership.
Your first step is to set a savings goal for yourself. How much do you need for a down payment and how far away from that goal are you? Crunch the numbers and decide how much more you need to save to reach your down payment goal.
Next, create a timeline and decide how much you need to save each month to reach your goal. Then set up an automatic withdrawal on every payday. To save even more, try to cut out unnecessary expenses. Instead of going out for lunch, make something to eat at home. Instead of paying for your morning coffee, make a coffee at home before you leave the house. It will be a bit of a lifestyle change, but you’d be surprised by how much you can save by cutting these little, optional expenses.
Are you ready to apply for a mortgage? I can help
Have you crunched the numbers and decided it’s time to apply for a mortgage? As a professional mortgage broker in Barrie with over 10 years of experience, I can help you reach your goal of homeownership. With my additional background as a financial advisor, I can also recommend ways you can save more for a down payment and how to optimize your cash flow throughout the lifetime of your mortgage as well.
Whatever your mortgage questions are, I have the answers and no question is a silly one. Knowledge is power and I’m here to help you each step of the way. If you know you’ve already got everything ready to go, you can start filling out your mortgage application here. If you’ve got a few questions before you get started give me a call at 705.315.0516. Your dream of owning your very own house is just a phone call away! Let’s make it happen!