Good Afternoon All!
Today is the first day of August! We are halfway into the summer months so I sure hope everybody is making use of the great weather before it is gone!
If you are a first time home buyer and are wondering the requirements of the down payment of the home there are a few key things to keep in mind. The main requirement to keep in mind is that you always need a minimum of 5% down payment, or in other words, 5% of your purchase price to have readily available. Further to this, you also need an additional 1.5% of your purchase price for closing costs. These closing costs include fees for your real estate lawyer, title search etc. If you are only putting down a minimum of 5% on your mortgage, that automatically puts you into the category of a ‘high ratio mortgage’. This means the lender will be deducting an insurance premium from your 5% down payment, the insurance premium is typically 2.75% of the total mortgage amount required if down payment is 5% of purchase price. The insurance premium exists as a mandatory in this case because it protects the lender from mortgage default. All of these funds are arranged by the lender and will be outlined in your mortgage commitment (mortgage papers to be signed). Your Mortgage Broker will arrange this with the lender you end up deciding to go with for your mortgage.
If you have greater than 20% down payment for your mortgage, then you do not need the mandatory insurance premium as you would for under 20% down payment. Ideally, the more you have saved for a down payment, the easier it will be for you to carry the weight of your mortgage and all the other expenses that come with it. Here are some helpful ways to save up for your down payment:
-Open a high interest or tax free savings account
-Open an RRSP; keep in mind the government allows you to use up to $20,000.00 dollars of your RRSP funds for first time home buyers. However, as soon as the funds are withdrawn they must be replaced within a 15 year period.
-Invest the money you currently have sitting in the bank
-Automatically have your financial institution withdraw $100 dollars every pay deposit you receive. That way it will automatically be set aside in your savings account without having to think about it!
These are just small ways to get you on track to saving for the biggest purchase you will make in your lifetime. Contact Mortgage Broker Robert Clancy today to see if you are a prepared home buyer!