So you’re thinking about buying a home, that’s great! You’ve probably started looking at listings, imagining what living in some of the houses would be like, and getting excited about the process. But then you look at a mortgage calculator and your bank account and wonder what you’ll need to buy a home.
There’s a few things you’ll need. One is a good credit score, and the other is as little debt as possible and steady income. To top it off, the main thing you will need is a down payment.
What is a down payment?
We have all heard others about how much ‘down’ they put on their home. How did they get their down payment, or how much they required, but what does it mean?
Essentially, it’s a sum of money you put towards purchasing a property. The money you have saved shows the mortgage lender, usually a bank that you’re serious about buying a property. A mortgage is a commitment to paying back the bank the money they lent you to buy a home.
How much is it?
The amount you need for a down payment will depend on the price of the house you’re looking to buy. In Canada, a property under $500,000 will need 5% of the list price for the down payment. If the home is between $500,000 and $999,999, you’ll need 5% on the first 500K and 10% on the amount above that. And if the home is over a million, you’ll need 20% for the down payment.
For example, if you’re looking at a home that’s $300,000, you would need $15,000 for the down payment.
Can I put down more than the minimum?
You can, and it will determine how much the bank is willing to lend you for the home purchase. If you have more than the required amount, the bank will pre-qualify you for a higher amount than if you had less for a minimum down payment.
The down payment also impacts your monthly mortgage payments. Because it’s going towards the total amount, the more you can put down, the less you’ll have to pay monthly. That can be very helpful in the long run when looking at your monthly budget and how much you can afford based on your income.
What if it’s my first home?
If you’re buying your first home, you’re in luck! There are incentives for first-time home buyers that make it so you don’t have to save up an exorbitant sum to enter the real estate market.
There is a program for first-time home buyers in BC, and it can significantly reduce or eliminate the property transfer tax you pay when buying your first home. This can save you thousands of dollars if you qualify.
There’s also an incentive for the first-time buyer: if you save money to buy a home, you keep that in an RRSP. You can take out up to $35,000 with no tax penalties if you’d be using it to buy a home. You do have to return those funds to the RRSP, but you’ll have ten years to pay that back.
The federal government also has an incentive program to help reduce the monthly mortgage payments without increasing the down payment amount. The First Time Home Buyers Incentive is an interest-free, shared-equity mortgage that must be repaid when the home is sold or after 25 years – whichever comes first—the government shares in any gains or decreases in property value.
Ready to start looking?
If you’re ready to take the first step towards home ownership, we can help! From the first meeting to handing you the keys, we will guide you on this real estate journey. We can answer any questions you may have any time you need us.
Call 250-860-0303 today, and let’s get started!
