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Down Payment Requirement and Guidelines

Although down payment requirements usually range from 5%-20% there are options for $0 down.

To obtain a conventional mortgage, home buyers are required to put down at least 20% of the purchase price or appraised value (whichever is less) as a down payment. If you don’t have the necessary time or resources to save a full 20% down payment, you can choose a high-ratio mortgage with a smaller or no down payment. If you have chosen a high-ratio mortgage Canadian law requires you to purchase default insurance.

Acceptable sources of down payment include:

Down payment from personal savings/own resourses– This may included savings in any bank accounts or personal investments. A 3 month history will be required along with an explanation of any large deposits along with proof to show it is in fact from your own personal savings/ assets and not borrowed. If you are a first time home buyer and wish to use your RRSP’s tax free, you may be eligible for the RSP Home Buyer’s Plan. If down payment is coming from the sale of a personal property, an unconditional sale agreement along with a mortgage statement (if applicable) is required.

Gifted down payment/equity– Gifted Down payment or equity from a from a immediate family member may be acceptable in some situations. If your credit is not very strong or if the lender has any other concerns with your application this option may or may not be available. In some situations the lender may want to see at least a portion of the down payment available from own resources.

Borrowed down payment– In some situations a down payment may also be borrowed from available credit sources such as a line of credit. It is important to note with this option, the newly incurred debt payments will need to be included in your debt ratio calculations, must not increase your debt load beyond what is acceptable with the lender and will require strong credit.

When assessing how much you have available to you for down payment purposes don’t forget to leave some funds available for closing costs (lenders typically like to see 1.5% available for this pupose)

Whether you choose a conventional or a high-ratio mortgage, one thing is almost always certain: the larger your down payment, the more you save in the long run.

Your TPTM mortgage specialist can show you how much you could save, and show you many more money-saving strategies.

Insurance

There are a number of different types of insurance that may be discussed throughout your mortgage transaction. It is important you understand the cost, the difference between them, and whether or not it will be required as a part of your transaction.

Default Insurance– Canadian law requires any high ratio mortgage (less than 20% down payment/equity) be insured with default insurance. Default insurance protects the lender, not the buyer, in the event the buyer defaults on their mortgage payments.

People who insure a mortgage loan with default insurance pay a premium. The three main default insurance providers in Canada are CMHC, Genworth, and Canada Guarantee. The premium these insurers charge is based on a number of factors including down payment, loan amount, amortization, and qualification criteria. Typical fees range from 1.00% to 3.50% of the principal amount of your mortgage however can be as high as 6.1% for specialty products (eg. Self declared income). This premium can be paid upfront or included in your mortgage loan.

Your TPTM mortgage specialists can help you determine the cost of your insurance premium if applicable.

Home Owners Insurance– This insurance covers the cost of replacing your home and its contents. Property insurance must be in place on closing day. Property insurance protects against fires, floods, and disasters. The mortgage lender requires this because the home is security for the mortgage. Most lenders require some form property insurance to be in place. If so your lawyer will request you bring proof of insurance with you to your appointment.

Mortgage/Life Insurance– This insurance will ensure you or your loved ones have the resources to either pay off or at least continue to make mortgage payments in the event the insured dies, becomes disabled, or suffers from a critical illness. Although this type of insurance is typically not required by the lender it is of great importance in protecting yourself and loved ones.

Although both mortgage and life insurance are designed to protect you, there is a large difference between the two and one should be aware of the differences before choosing a product. Please see Mortgage Insurance Vs. Life Insurance to learn more.

RSP Home Buyers’ Plan

The RSP Home Buyers’ Plan (HBP) lets a first-time buyer withdraw up to $20,000 from RSPs for a home purchase. The withdrawn amount must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn. If the full $20,000 is withdrawn, the minimum annual repayment is $1,333. If less than the minimum is repaid in any particular year, the balance is added to the taxpayer’s income.

Want more information? Check the Canada Customs and Revenue Agency Publication.

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