The purchase of a new home is a big process with an up-front financial obligation that can be daunting, especially for first-time homeowners. If a prospective homeowner needs to explore different options in order to successfully save for a Calgary home down payment, consider the following down payment options and financial tips.
How to Buy a Home Using Different Down Payment Options
Buying a new home is an exciting time. However, some potential buyers may not be able to come up with the ideal down payment amount, making them think that homeownership is not a feasible option at the moment. This does not need to stop one from applying for a home mortgage loan, as it is possible to buy a home while offering a small down payment to lenders. Potential buyers may have to pay some additional fees but will be able to start making mortgage payments on their home, as long as they meet lender requirements.
How Small of a Down Payment May Be Accepted?
When it comes to a down payment, much depends on the purchase price of a home. Did you know that, in most cases, the minimum down paymentrequired on a home that is $500,000 or less is only 5 per cent? This means that individuals who want to own a home may currently may have the means to do so, without waiting to amass a larger down payment. Potential buyers who are looking to buy a home within the range of $500,000–$999,999 will likely have two separate down payment amounts that will be combined. For example, if a home's purchase price was $600,000, they would need to make a payment of at least 5 per cent of the initial $500,000 of the price, and then 10 per cent on the remaining $100,000. This 10 per cent down payment on the amount in excess of $500,000 continues for homes until they reach a purchase price of $1 million.
When Do You Need to Make a Larger Down Payment than Expected?
Not every home mortgage applicant will be able to make a small down payment. Potential borrowers with a poor credit history or who are self-employed may need to offer more than the minimum down payment suggested above.
Are There Assistance Programs for Potential Buyers?
Some mortgage applicants may have difficulty coming up with their down payment. Potential buyers may be able to benefit from Canada's Home Buyer's Plan (HBP). This allows for withdrawals from a retirement savings plan, Registered Retirement Savings Plan (RRSP), in order to purchase or build an eligible home.
Should You Budget for Paying Insurance Fees?
Those taking out a mortgage from a conventional Canadian lender and making a small down payment will have to pay LMI or Lenders Mortgage Insurance. Rates can vary and borrowers should review the fine print. LMI payments do not go toward paying down the balance of the loan. This additional expense is one aspect to be aware of when making a down payment of less than 20 per cent and are no longer required when the LTV is in excess of 80 per cent. Learn more about LMI payments from a potential lender.
Tips to Help You Save for Your First Calgary Home
Posted by Justin Havre on Thursday, January 23rd, 2014 at 10:27am.
If you're renting, but you plan to save to purchase your first home, putting the right plan in place will make all the difference. Many first-time home buyers make the mistake of just buying any home they can afford without the patience to save for the right home. Choosing a home that will fit your needs for years to come and planning properly before purchasing is very important. Follow these tips and you will be better prepared when the time is right for your home purchase.
Start with your Credit Report
Looking good on paper will make a world of difference when you apply for a mortgage. You want to make sure everything looks as good as possible for the lender. This will actually save you money because those with great credit usually get a lower interest rate.
Make sure you pay your bills on time and you keep your credit card debt under 25% of your credit limit. This will help to build your credit score and give you a better chance to get the home you want, with a lower interest rate on your mortgage.
Down Payment Savings
One of the most important parts of your plan to buy a new home is saving for a down payment. Even if you qualify for a mortgage that doesn't require much down, it's smart to save around 20% of the home selling price for your down payment. This can be difficult, but it can be done.
If you get any bonuses from your job or any unexpected income, save it towards your down payment. You can also look for ways to cut back on your monthly budget and make sure you put this cash in a high-interest saving account.
Save for Additional Home Ownership Expenses
Often, first-time homebuyers are not prepared for the added expenses that come with a new home. Closing costs, potential repairs, utility deposits and more can ruin your plan, if you're not prepared. Save an extra 2–3% of the selling price for closing costs and make sure you have about six months of bills set aside in a savings account.
Follow these three tips and consult with an expert before you decide to buy your new home. This will help you go into the new situation prepared and ready to handle any of the unexpected expenses thrown your way.
Financial Sacrifices For Home Buying
A lot of people say that they dream of owning a home but end up staying in a rental unit year after year. It's not because they are lying about wanting to own a home that leaves them in this situation - they just haven't confronted the consequences and the sacrifices that may be necessary in order to see the dream come true.
It's quite easy to paint a beautiful picture of what you want to have in the future. A lovely home with a fence in the backyard where your children and your dog can run around and play would be nice. There may be a deck and a sprawling patio that houses a barbecue. You can envision inviting your friends and neighbours over for weekend barbecues and you even embrace the thought of having to mow the lawn every few weeks.
There's nothing wrong with having this vision but you must also realize that there is another one that needs to be made as well. In order to save up for a down payment you may have to sacrifice some of the luxuries in your life right now to see it through. This vision won't be as pretty as the first one, but it is a reality for many and an important step in making it towards home ownership.
You may have to give up eating at your favorite high-class restaurant for a while and take a look at how you can budget your money even further. Instead of going out to the movies you might have to invite your friends over instead to enjoy the latest blockbuster released on DVD and serve up your own homemade popcorn.
The cost of homeownership includes both positives and negatives. You will have to work through some of the negatives along the way in order to receive the positives that await on the other side. While you are making the sacrifices, however, you can keep things happy and positive by staying focused and planning for the future. When all is said and done, nothing beats the freedom of owning your own home. There will be a day when you will be able to look back and be thankful for the sacrifices that you did make.
What Not to Finance When Saving for a Home Down Payment
When you're saving for a down payment for a new home in Calgary your budget should be reined in as much as possible. This is the time to stop accumulating any type of debt and time to put your money aside for the new place. Just in case you feel tempted, here's a reminder of a few things that you'll want to avoid financing until you've moved into your new home and feel comfortable making the payments and adding new debt to the load.
Purchasing A New Car
This can be a huge debt to take on and should be avoided if at all possible. You're better off taking a couple of thousand dollars and purchasing a used car with cash instead. You can look for a better car later and in the meantime still have transportation to get you back and forth from work and do your errands.
When it comes time to apply for a mortgage, your debt load will be studied and thoroughly examined. You don't want to run the risk of not being accepted for a home loan simply because you financed a new vehicle and assumed too much debt in comparison to your income.
High End New Furniture
Put off buying furniture for your new home until you move into it. Although it can be quite tempting to head to the furniture stores to find beautiful furniture that would fit right into the new place, you'll be better off waiting. Besides, all the extra money that you can put into your down payment will help you save on interest down the road.
New Expensive Electronics
It's time to stop thinking about bigger and better toys and concentrate instead on the adult issue at hand. Part of home ownership includes taking on a heightened sense of responsibility and it's time to put it into practice now before taking out a mortgage. If you aren't able to resist the fancy new gadgets that are being added to the marketplace, and all of the upgrades that are consistently being offered, how are you ever going to turn them down later on when your home needs repairs?
It's time to really buckle down and turn up your resistance level to the fascinating objects that you want to buy. Once you are in your new home you’ll be able to access your project in a new unit of time and can sit back and enjoy home ownership knowing that you had the responsibility level that got you there.
Know What to Expect When Buying a Home
In some cases, it may be better to look for a lower-priced home in order to establish more initial equity and make a larger down payment. This may make for fewer LMI payments to a lender. It is important to get an estimate of the total mortgage amount needed, as well as additional expenses, such as moving and closing costs, involved in buying a home.
In order to apply for a home mortgage, it is useful to review one's credit, pay down outstanding debt and show a steady source of income to a lender. Speak with a lender to learn more about the eligibility requirements for taking out a home loan. A qualified Mahogany Bay real estate agent will be able to direct potential home buyers to a mortgage broker or lender that can assist them in the areas and price ranges that fit their budgets.
Additional Options to Finance a Home Down Payment
There used to be a time, and it seems oh so long ago, when you could purchase a home in Canada without a down payment. Yes, 100% home financing was available in this country before 2008. Today, you'll still need to come up with a 5% down payment if you're working with a lending company that isn't federally regulated, such as a credit union. There are other ways to go about getting your hands on a down payment without having to break the bank though so that you can dive right into home ownership right away.
Cash Back On A Down Payment
In Canada, many provinces will allow lenders to offer a mortgage with cash-back for the down payment as long as the lender is not federally regulated. There aren't too many lenders that still offer this type of home loan but they are out there if you look for them.
You'll still have to qualify for the mortgage, however, and these lenders are going to make certain that you'll be able to carry the mortgage payments through based on your current income and job security. Your credit history will need to be great in order to get accepted for this kind of mortgage as well. You'll also have to be prepared to cover the closing costs including the land transfer tax, inspection fees and legal expenses.
Cash-back mortgages also come with a higher rate of interest but when all is said and done the overall cost of borrowing really isn't that bad when the free cash is factored into the equation. If you do end up needing to sell your home for any reason in the upcoming future, however, you won't have as much of an equity cushion to fall back on should house prices fall.
Using Your Credit Card
There are some lenders that will allow you to use your credit card to finance your down payment. If you're considering this as an option, you'll have to check with lenders first to find out which ones will okay the processing of your mortgage this way.
With most credit cards charging an interest of 20% or more these days, you'll really have to crunch the numbers to make sure that you can afford both the mortgage payment and the credit card charges. In some cases you may also be able to use your personal line of credit account to fund the down payment, which may have a lower interest rate than your credit cards do.
There are a number of different programs available in many provinces for people with moderate or low incomes to help with the high cost of buying a home. In some cases lenders will allow these borrowers to purchase a home without a down payment. There may also be municipal programs in your area or specialized programs with individual lenders that are also available.
Using Your RRSP
First-time buyers can borrow money from their RRSP to be used as a down payment. You'll be able to use up to $25,000 of your RRSP for this purpose. There are both pros and cons to dipping into an RRSP to buy a home and it's important to read up about the rules governing this arrangement first to make sure that you understand them fully.
Using Gifts As A Down Payment
Most of the lenders across the country will allow gifts to be used as a down payment for a home as long as they are coming from a sibling, grandparent or a parent. This is, in fact, one of the reasons why many young people can get into the real estate market earlier than others.
Sometimes you can feel like you're beating your head against a wall when you're trying to scrounge up the money for a down payment. If so, you may want to consider one of the alternatives above so that you can finally leave the renter's market and head towards home ownership. Just make sure that you understand that these types of mortgages always carry more risk than a regular mortgage with a down payment of at least 5%.