One of the first steps:
to buying a home is determining how much you can afford - and then calculating how much down payment is required. A mortgage professional can help you assess your means and options, and help you build a plan to reach your goal.
Many people believe they have to save a large down payment. Thanks to mortgage default insurance, however, you can buy a home with as little as five per cent down payment. Keep in mind, though, the larger the down payment, the lower the mortgage payments, so it's wise to save as much as possible.
Mortgage default insurance protects the lender should you default on your mortgage payments. That protection gives lenders the freedom to offer you the same low interest rates they would offer to those homebuyers with more equity. In Canada, mortgage default insurance is required federally on mortages with a down payment of 20% or less. The premium is based on the amount of your mortgage and although it can be paid in a lump sum upon closing, it is normally added to your mortgage amount and paid over the length of your mortgage.
It's not to be confused with mortgage life infurance, which protects you and your family in the event of death or illness.
To calculate how much to save, consider a 5 per cent down payment as a good starting point.For example, to purchase $300,000 home, you'll need to save $15,000 plus an additional sum to cover all fees and closing costs. If your goal is to own a home within three years, this translates to saving at least $146 per month for the next 36 months.
The best way to build a savings account is to adopt a "pay yourself first" philosophy. Open a separate savings account and deposit a set amount of money every month through an automatic withdrawal from your paycheque or other bank account. Talk to a financial advisor for advice on how to grow your savings most effectively.
First-time buyers can also benifit from the Federal government's Home Buyer's Plan. This program allows you to withdraw up to $20,000 from a Registered Retirement Savings Plan (RRSP) to put towards a down paymnent on a first home. As long as the amount withdrawn for this purpose is paid back within 15 years, the money's not taxed.
Saving for a home can be a challenging but fulfilling task. In a recent survey conducted by Genworth Canada, more than 90% of homeowners said that "even though it was more work and effort, they'd rather own a home than rent." So persist in your goal to save for a downpayment-it's well worth the effort.
attribute to Genworth Canada