08/18/2022
What is a downpayment?
A down payment is the amount of money you put towards purchasing a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the cost of the house.
Sources of downpayment:
Most home buyers are aware that they will require a certain amount of money for a down payment. What many do not realize, is that lenders are required to verify the source of the funds.
1. Savings Account
The first and most traditional method is your savings account, where you have been pinching your hard-earned pennies to save up for this day!
If you are utilizing your personal savings for a down payment, note that lenders will require three months of full bank statements. This includes name, account number, transactions, and balance history.
2. Gift from a family member
If you are fortunate enough to receive help from the Bank of Mom and Dad for your down payment, there are certain requirements:
---> A signed gift letter from the immediate family member contributing the fund.
---> Proof of the transfer into your bank account.
Important note: If money is being received from immediate family overseas, most lenders will require copies of the wire transfer. In addition, they may ask for account history.
3. RRSP Withdrawal
Another option for a down payment is the use of a Registered Retirement Savings Plan (RRSP), but only if you are a first-time buyer. This is part of the Home Buyers’ Plan (HBP), which allows first-time buyers to borrow up to $35,000 from their RRSPs (tax-free!) -as long as the money is repaid within 15 years.
How much down!!
The minimum amount required in Canada is 5% for the first $500,000, with 10% down on any amount beyond that threshold. For example, on a $600,000 house you would need to put $35,000 down at minimum ($25,000 on the first $500,000 and $10,000 for the additional $100,000 purchase price).
Keep in mind, that if your down payment is less than 20% of the price of your home, you will be required to purchase mortgage loan insurance in case of default. These premiums range from 0.6% to 4.50% of the total amount of your mortgage.
Additional costs and fees:
One component of the purchase process that homeowners often forget about is the closing costs. These are typically 1.5% up to 4% of the purchase price. In order to get financing, you are required to show that you have enough to cover these costs, which include legal fees.
Neetha Dsa
Mortgage Agent,
Dominion Lending Centre FCF
(226) 977-6050
[email protected]
visit www.neethadsa.ca for more info.
