Dominion Mortgage Pros

When it comes to buying a new home in Canada, one of the first hurdles we face is the down payment. Understanding the ins and outs of down payment rules can save us not just money but also some sleepless nights. At Dominion Mortgage Pros, we believe that knowledge is power, especially when it comes to your financial future. So let’s dive into the essential aspects of down payments for new homes in Canada.

What is a Down Payment?

A down payment is the borrowers contribution to the purchase. It is crucial as it demonstrates to lenders that we are serious about buying and have some skin in the game. The amount we put down can significantly affect our mortgage terms and monthly payments.

How Much Do You Need for a Down Payment?

The minimum down payment in Canada varies based on the purchase price of the home. The general rule is:

• For homes costing up to $500,000, the minimum down payment is 5% of the purchase price.
• For homes priced between $500,000 and $1,499,999, we need to pay 5% on the first $500,000 + 10% on the portion above that.
• For homes costing over $1.5 million, a minimum down payment of 20% is required.

For example, if we’re buying a home for $600,000, our calculation for the down payment would look like this:

• 5% of $500,000 = $25,000
• 10% of $100,000 = $10,000
• Therefore, the total down payment required would be $35,000.

What if We Can’t Make a Large Down Payment?

If our down payment is less than 20%, we will have to purchase mortgage default insurance (often called CMHC insurance). This insurance protects lenders in case we default on our mortgage. While this insurance does add to our costs, it’s a small price to pay for securing financing when we might not have a large sum saved up.

Source of Down Payments

It’s important to note that the money for our down payment must come from acceptable sources. Here are some common sources:

• Savings Accounts: Personal savings are the most common source.
• Gifted Funds: Family members can gift us the money, but we will typically need a gift letter to prove there’s no obligation for us to repay the amount.
• RRSP Withdrawals: Under the Home Buyers’ Plan, we can withdraw up to $35,000 from our Registered Retirement Savings Plan (RRSP) to put toward our down payment if we qualify as a first-time homebuyer.

Pre-Approved vs. Pre-Qualified: What’s the Difference?

Before we even start house hunting, we should consider getting pre-approved for a mortgage. A pre-approval involves a lender assessing our financial situation and credit history to determine how much we can borrow. This includes looking at our potential down payment, income, and debts.

A pre-qualification, on the other hand, is more of a soft assessment based on the information we provide. It’s a quick way to get an estimate, but it carries less weight than a pre-approval.

How Does the Down Payment Affect Our Mortgage?

The size of our down payment significantly influences our mortgage terms:

• Lower Monthly Payments: A larger down payment means borrowing less, which translates into lower monthly payments.
• Better Interest Rates: Lenders see a larger down payment as a sign of stability and financial responsibility. This may lead to more favorable interest rates.
• Elimination of Insurance Premiums: If we can put down at least 20%, we won’t need to purchase mortgage default insurance, saving us money.

Real Estate Market Insights

As of late 2023, the real estate market in Edmonton has shown signs of stability, with average home prices hovering around $400,000. This means many first-time buyers are facing that 5% down payment, which amounts to only $20,000. This is achievable by many, especially with the help of savings or a gift from family.

Understanding Your Financing Options

At Dominion Mortgage Pros, we know that finding the right mortgage isn’t just about understanding down payments. It’s about finding the best financing options available for our situation. With various Canadian mortgage programs available, there might be options like:

• First-Time Home Buyer Incentive: A shared equity program designed to help us reduce our monthly mortgage payment.
• New Home Buyer Tax Credit: Offering substantial tax relief for qualifying buyers to ease the financial burden.

Final Thoughts

Navigating the down payment rules for new homes in Canada can seem daunting, but with the right knowledge and support, we can feel confident in our decisions. Whether we’re shopping for our first home, considering refinancing, or just exploring options, Dominion Mortgage Pros is here to help. Understanding the details about down payments doesn’t just prepare us for our current purchase; it’s an investment in our future financial well-being. Let’s make your home ownership dream a reality!