Understanding Your Down Payment Options
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Understanding Your
Down Payment Options
Many
people mistakenly believe that home ownership isn’t an option for them but the
fact is that there are multiple ways to acquire a down payment. Pair that with
record low interest rates and it would be foolish not to buy in 2012.
Right now the minimum down
payment required in Canada is just 5% of the homes purchase price. However, as
a general rule, you should put as much money down as possible. That amount will
determine which home you purchase, the size of your mortgage payments along
with just how much insurance you have to pay.
Here are some ways in which
you can obtain a down payment:
Purchaser’s Savings
January 1st, 2012 introduced the First-Time Homebuyers’ Tax Credit. It will
provide a provincial non-refundable income tax credit of up to $1,100 for
eligible taxpayers. While the details of the program are still being developed
it is known that the personal income tax credit applies to qualifying homes
purchased after December 31st, 2011.
Interim Financing
Interim financing (bridge financing) is used when a buyer needs to sell their
current home in order to purchase another but the sale of the first home can’t
be completed before the purchase of the second. Even though this situation
would have the buyer paying more interest, it’s usually nominal and only for a
short time.
Rent-to-Own
When you rent-to-own a portion of the rent you’re paying actually becomes your
equity once you purchase that property. In order for this to work though the
purchase agreement:
- Must
acknowledge that a portion of the rent includes a pre-payment of equity on
a monthly basis.
- Must show
that the monthly rent payment is an amount in excess of the current market
rent for the property.
- Must
contain at least a partial refund in the event that the purchaser doesn’t
exercise their right to buy the property.
In the chance that the property’s value decreases the
surplus rent may not be accepted as equity when eventually applying for a
mortgage.
Gift from an
Immediate Relative
In the instance where a home buyer is unable to come up with a down payment
they can seek assistance from an immediate family member if the funds are clear
of any repayment obligation. You simply need a mortgage gift letter from them
stating that this is the case. Also note that gift money must be in the buyer’s
possession at least 15 days prior to closing.
Borrowed Against a
Proven Asset
The Canadian Mortgage Housing Corporation (CMHC) permits down payments that
have been borrowed against proven assets so long as those assets are “financial
in nature, unencumbered by debt, and readily convertible to cash.”
Home Buyers’ Plan
(HBP)
First-time home buyers are able to withdraw up to $25,000 from Registered
Retirement Savings Plans (RRSPs) like the Home Buyers’ Plan (HBP) to be used
toward a home purchase, tax-free. Just be sure that your RRSP contributions sit
for at least 90 days prior to being withdrawn in order to be deductible. They
also need to be repaid within 15 years.
Affinity Equity
Building Program
The Affinity Equity Building Program is a partnership between the city of
Saskatoon and Affinity Credit Union. In order to be eligible for the program
the applicant must:
- Purchase
property that they will reside in within the corporate boundaries of
Saskatoon therefore causing a rental unit within the city to become
available.
- Have a
household income that ranges between $44,500 to $70,000.
- Repay the
funds over a five year period.
Now that we have reviewed
down payment options you can contact me to get pre-approved for your mortgage
and begin looking for your new home right away!