How Much Money do I Need to Buy A House?
Home ownership is not always as difficult to attain as it seems when purchasing a home through a bank or a monoline lender (a lender whose only product is mortgages).
There are 3 insurers in Canada; Canada Mortgage and Housing Corporation (CMHC), Genworth Canada and Canada Guaranty.
If you are purchasing a home for $500,000 or less the insurers require you to have a minimum down payment of 5% or $25,000.
For a purchase price between $500,000 and $999,999 the insurer requires you to have a minimum down payment of 5% of the first $500,000 then 10% of the difference between $500,000 and the purchase price.
For example, a purchase price of $750,000 would require a $25,000 on the first $500,000 then 10% of the difference ($750,000 - $500,000 = $250,000) which would mean 10% of $250,000 ($25,000) plus $25,000 (5% of $500,000) for a total of $50,000.
The insurers, in the aforementioned paragraph, all have different rules for down payment sources. As of July 1st, 2020, CMHC has altered their down payment source (refer to my previous Instagram post).
For a purchase price above $1,000,000 lenders will require a minimum down payment of 20% which can be gifted funds, unsecured line of credit, secured line of credit, RRSP, investments etc. The key is to remember is that any borrowed money being used for a down payment needs to be included in the debt servicing calculations (calculation used to determine mortgage affordability by a lender).
Lastly, most insured deals require the borrower to have at least 1.5% of the purchase price in savings in order to account for closing costs (land transfer tax, solicitor fees, appraisal fees and any other fees required to close your deal which your solicitor would inform you of).
There are other ways to purchase a home through private financing which can sometimes lend 95-100% of the purchase price. However, this is a much more costly option but can be the correct fit given the right scenario.
Stay tuned for details on private financing in my next blog post!
