How Much Do I Need For a Downpayment?
The current minimum downpayment to purchase an owner occupied home is 5%, whether you are a first time homebuyer, current homeowner, or have owned in the past. 5% is also required for an owner occupied rental (2 units or 1 unit + granny suite). 2nd homes that will be occupied by family can still be Genworth insured with 5% down, however no rental income can be counted in the application. Strictly rental properties require a minimum of 20% down and owner occupied triplexes require 10% down.
Option #1 – RRSP Home Buyers Plan (lenders require proof of RRSP statement and deposit into bank account)
The government’s Home Buyers Plan is a quick and easy way for first time homebuyers to free up cash for a down payment on a home. As part of the plan, new homebuyers can draw up to $25,000 from their RRSPs in order to beef up their down payment. They then have 15 years to repay back their RRSP, or claim the yearly HBP repayment as taxable income. To qualify for this program you must not have owned a home in the past 5 years and the RRSPs must be on deposit for at least 90 days.
Option #2 – Borrowing Your Down Payment
It’s important to note that Ottawa prohibits house hunters from borrowing the minimum 5 percent down payment from a mortgage lender if that lender is a bank or trust company. The exception to the rule would be from a secured Line of Credit on an existing owned property, as that is considered "own" resources because it is the equity they have built up.
With that being said, homebuyers can still leverage other credit sources. Popular options include lines of credit, personal loans, and even credit cards. (A word of warning, slapping your down payment on your VISA is not a good idea). Borrowing your down payment might seem like an easy solution, but it’s also an extremely expensive one. It’s not uncommon for the interest rate on your borrowed down payment sum to be much higher than the rate you’re paying on your mortgage as a whole.
Option #3 – A Gifted Down Payment (usually requires a gift letter and proof that the gift has been deposited in your bank account)
Having your parents or grandparents “gift” you a down payment is perfectly legal, provided you can get everyone to sign the proper paperwork. It’s also important to note that a “gift” is not a personal loan. With a gift, there is no expectation to pay your relative back. If you’re borrowing the money from a relative, it’s considered an additional liability and the bank will see that as an increase to your debt obligation.
Option #4- Cash
Cash downpayments require a 90 day history of the money. This is due to the Goverment Anti-Money Laundering Act. If you don't have a 90 day history,you will have to prove where the money came from (ie a letter from a lawyer showing it came from an inheritance, sale of a previous res, etc).
If your have any questions about down payment options please call Julie.
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