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Want to buy a home? Well then, you need a down payment.
Sounds simple, but coming up with the funds to buy a house can be hard. Whether you put the minimum of 5% down, or save up for more, the amount will affect whether you get an insured or conventional mortgage.
Whether you're interested in buying your first home, or a vacation or income property — lenders expect you to put some cash towards your purchase, called a down payment.
Your down payment secures at least a small portion of equity in your home or property. It also indicates your financial commitment towards such a large purchase and the resulting mortgage loan. Before you start the pre-approval process and house-hunting, you'll need to know how much you can put towards a down payment.
Tip: Be sure to have your down payment ready at least 30 days before you apply for a mortgage loan (some lenders require longer).
Just 5% down can help you own a home, though there are price restrictions for this amount. And, any down payment between 5% and 20% of the home price means that your mortgage will require mortgage default insurance to protect the lender, provided by Canada Mortgage and Housing Corporation (CMHC), Sagen or Canada Guaranty.
Called a high-ratio mortgage, the legal requirement for default insurance means that you can still get a home with less than 20% down, but it comes with added premiums relative to your mortgage size (after the down payment is deducted from the home price).
Depending on the lender, you can usually access the same (or lower) interest rates compared to a conventional mortgage (see info below). We can get your best rates, regardless of your down payment amount. But overall, the more money you can save and put down on your purchase, the lower your mortgage and payments will be.
If you supply a down payment of 20% or more for any home price, it's considered to be a conventional mortgage, which doesn't legally require mortgage default insurance. That means that the bank carries more capital in order to provide your mortgage, which can sometimes mean slightly higher rates.
But overall, the more you put down, the lower your mortgage amount, and the more you'll save through lower monthly payments and the overall interest cost of your mortgage. Plus, you'll build equity in your home faster and likely have access to better product options.
A down payment becomes increasingly important if your credit history is less than stellar. Some lenders may overlook past credit blemishes, or not insist on verifying income or other financial status, if you're able to provide 35% to 40% of the purchase price for your down payment.
With your down payment, you'll need to qualify for your mortgage amount and rate. The recent mortgage stress test regulations mean that you may now qualify for less mortgage. We can help get your best rate, and determine how much house you can go hunting for.
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