Where to Find Money for Your Down Payment

Coming up with a lump sum of money for a down payment can be scary and daunting to many first-time buyers. You definitely don’t want to wipe out your entire savings to purchase a home.
It doesn’t have to be a roadblock to homeownership!
Once you’ve got your monthly budget all set and know approximately how much home you can really afford (see the fourth article in this series), the next step is dealing with your down payment.
Here’s some guidance on where you can find cash for your down payment and also a rundown of some great homebuyer assistance programs that can help reduce the amount taken out of your own pocket.

How Much Down?
How much money you need for a down payment can depend on the type of mortgage you will get for your financing.

 
· Typically they minimum amount you’ll need to put down is 5% but it depends on the price of the home you want to buy as well. For example, if you want to by a $700K home, the minimum you have to put down is 5% on the first $500k and 10% on the remaining $200k for a total of $45,000 or 5.42%. If you put down less than 20% on a home, you’ll need to budget for the cost of mortgage insurance to be added to the mortgage amount.
However, the amount you put down really depends on YOU. If you’re a first-time buyer, don’t put all of your savings into your house. You may need some of that cash once you’re a homeowner.
Instead, put down just enough to buy the house and get a monthly payment that works for your budget right now.
Once you narrow down your mortgage options and take into account any homebuyer assistance programs, you’ll have a better idea of how much you’ll actually need for your down payment. Next week you’ll learn to sort through all the mortgage options out there so stay tuned for that!
Here’s a rundown of where to find money for your down payment:
Help from Homebuyer Assistance Programs
As a first-time homebuyer, you may qualify for First Time Home Buyer Incentive and/or the First Time Home Buyer Plan (HBP)

 
https://www.cmhc-schl.gc.ca/en/consumers/home-buying/first-time-home-buyer-incentive

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html

If you’re a first-time buyer you should look into these programs before you consider other options …they can really help you put money towards your home purchase.

Assistance from Family or Friends
You might be reluctant to ask your family, but they can be a great source for your down payment. You will need to decide if this is a gift or a loan. Your parents might have done the same thing when they bought their first house!
· Gift from Family. Immediate family will often help with home purchases. Gifts are not taxable in Canada. Documentation is required so you need a letter stating that the money is indeed a gift with no expectation of repayment.
· Borrow from Family or Friends. You may prefer to ask for a loan rather than a gift from a loved one. However, your lender needs to know if you are borrowing from family or friends since they will consider this an additional debt for you. The lender will factor this additional debt into its own decision on whether to loan you money.

 
Boost Your Savings
This is one area where you have some control over and should start making an effort as soon as you even begin thinking about buying a home. The earlier you start, the more you can increase your personal savings.
· Deposit $$ in Bank Regularly. You’ve probably heard this before, but it does work: Get into the habit of putting the same amount of money into your savings after every paycheck. If you get paid every two weeks and save $200 from every paycheck, you will have saved more than $5,200 after 12 months. Not bad!
· Sell Stuff on eBay or Craig’s List. Everyone has unwanted items that take up space. Consider selling these items and put that money toward your down payment.

 
Getting a mortgage these days, especially for your first home, is definitely not “one-size-fits-all” these days. Email me so we can set up a time to talk through the options and narrow them down to which one or ones are best for you and your particular financial situation and goals.
Next week get all the details in the Five Steps to Obtaining a Mortgage