THE LOWDOWN ON DOWN PAYMENTS :
5 THINGS YOU NEED TO KNOW
1. What is a Down Payment?
When you buy a home, you must put a certain amount of money toward the purchase upfront. This is called a “down payment”. Your mortgage loan will cover the rest of the price. What is the minimum down payment required when buying a home, and where can it come from? You can purchase a home with as little as 5% of the purchase price as a down payment. This down payment can be from your own savings /RRSPs or investments, it could be a gift from a family member OR with certain lenders it can even be borrowed from a loan or line of credit.
2. What is a High Ratio Mortgage?
A high-ratio mortgage applies to people that have less than a 20% down payment to put towards the purchase of a home. In these cases, you must qualify for mortgage insurance through one of three insurers – Genworth, CHMC or Canada guaranty. A one time insurance premium will be added to your mortgage balance and is calculated based on the loan to value ratio:
Down Payment Insurance premium
Up to and including 65% 0.60%
Up to and including 75% 1.70%
Up to and including 80% 2.40%
Up to and including 85% 2.80%
Up to and including 90% 3.10%
Up to and including 95% 4.00% Traditional Down Payment
Non-Traditional Down Payment 4.50%
3. How to calculate your Minimum Down Payment?
Typically a minimum down payment is starting at 5%. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000 and under $1,000,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
- Example: If your purchase price is $750,000, the minimum down payment is: 5% * $500,000 = $25,000; 10% * ($750,000 – $500,000) = $25,000; And the total down payment is $25,000 + $25,000 = $50,000.
4. What is a Conventional Mortgage?
Conventional mortgages are mortgages that do not require mortgage default insurance. 20% is the minimum down payment in order to avoid insurance premiums, however, there are some exceptions to this rule. Mortgage default insurance or a larger down payment may be required for unique properties, purchase prices over 750k, mobile homes or higher risk clients.
5. What about Home Equity Credit Lines (HELOC’s)?
The majority of lenders will only lend up to 65% of the value of a home in a HELOC. This means if you only want a HELOC on your home you will need a minimum 35% down payment on the purchase price. However, there are a few lenders who will still consider HELOC’s right up to 80% of the value of the home, so purchasing with 20% down may be an option for a strong applicant.
You can also do a combination of mortgage and HELOC on your property up to 80% of the appraised value with the majority of lenders as long as the HELOC portion does not exceed 65%.
Contact me anytime for more information!