September 24, 2019
In our previous post on the First-Time Home Buyer Incentive Plan (FTHBI), we looked at how the program could help first-time homebuyers with their monthly mortgage payments by increasing the amount for a down payment. It sounds promising but you still need to have the money available for your portion of the down payment.
A down payment will minimize the amount you borrow from the bank. The bigger the down payment, the less you have to borrow, which means paying less principal and less interest over time. The minimum amount you need for a down payment is based on the purchase price of your home.
COMMON SOURCES OF DOWN PAYMENT
The most common sources of down payments come from the following.
If you’re interested in the FTHBI plan, your portion of the down payment can only come from the above traditional sources. But, what if RRSPs or savings aren’t an option for you?
BORROWING FOR A DOWN PAYMENT
Before we look at a less common way of getting that down payment for your first home, we need to stress that you should talk to a mortgage broker before making a down payment strategy. Most often, we are going to recommend using traditional sources, discussing the pros and cons of each source. But, there are instances where borrowing money for your down payment can work.
The Cash Equity/Borrowed Down Payment Program, used by Genworth, one of Canada’s three mortgage insurers, allows first-time buyers to borrow money from an unsecured loan or line of credit for their down payment. The program sounds like the golden key, but as with all things good on paper, you must read the fine print.
If you’re borrowing funds, this debt payment is included in your qualifying ratios as you now have more debt to pay with the same income amount. If these ratios are too high, your lending options are limited. This is where a mortgage broker can play with the math to see if it can work and recommend you to professionals who put these types of loans together.
WHOCH METHOD IS BEST FOR YOU?
Once again, our favourite answer: it depends. If you know you won’t be able to save enough for a down payment soon, then borrowing the money may be an option. If you have socked away your cash in RRSPs or a savings account and you are looking for the long-term tax benefits, then that might be the best path to take.
Our advice is to start asking questions. Our job is to filter through the options for you and come up with a plan to get you into your first home.
Source: Quantus Mortgage
Please feel free to contact me with any questions you may have. It would be a pleasure to assist you or any one of your friends or family members!