Downlow on downpayments

Plenty of options available to buyers
nolanWhen buying a home, the first thing to consider is the down payment.

Most people know they need at least five per cent of the purchase price as a minimum  requirement, and 20 per cent to avoid Canadian Mortgage and Housing Corp. (CMHC) mortgage insurance. However, many people do not realize there are more places to come up with a down payment than just your savings. Here are a few of the most common:

Savings
The first and most common source of a down payment is a person or a couple’s savings. First you save, then you buy the house – pretty straightforward.

RRSP
The second-most common source of a down payment, especially among first-time homebuyers, is with RRSPs. A first-time homebuyer can withdraw up to $25,000 from an RRSP without penalty and interest free, as long as they pay it back over the next 15 years.

Gift
Gifted down payments from an immediate relative are also common. Gifts most often come from parents who wish to help their children purchase a home. All that is typically required is a gift letter stating the funds are in fact a gift, and proof the money was deposited into the recipient’s bank account.

Tax Free Savings Account
TFSAs are essentially a savings account where the funds grow tax-free. There are certain rules that apply when withdrawing funds from TFSAs – for example, you can’t redeposit the money until the next calendar year – but they can be a great place to invest money you are saving for a down payment.

Company Stock Plans
In addition to TFSAs and RRSPs, which can often be set up through an employer, company stock plans can also be used to fund a down payment. Many participating employers have specific programs designed to make home ownership a reality for their employees.

Borrowed
Down payments can be borrowed against both existing assets, such as homes or vehicles, or from other sources, such as unsecured lines of credit. Just make sure you tell your mortgage professional you are borrowing the funds so they can account for it in the application.

Equity Grant
Some organizations provide grants for individuals who meet certain financial and work requirements. While they are often hard to find, they do exist, and can be an effective way to make a down payment.
If you have questions about how to go about saving for a down payment, give us a call. We are more than happy to help you come up with a strategy.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

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