REALTOR® in Whitehorse Discusses How to Afford a Mortgage Down Payment

Owning your own home is a dream that many North American families aspire to achieve. However, in today’s real estate market, steep housing costs have made it a challenging goal to reach. Oftentimes, the greatest hurdle faced by home buyers is the down payment. Banks and other lenders in Canada generally look for a down payment of 20% or higher. Of course, this depends on the purchase price of your home, but the higher the down payment, the better. If you’re struggling to save enough money for your down payment, you’re in the right place. As your REALTOR® in Whitehorse, I have discovered several tips and tricks throughout my career that have helped homebuyers make good on their goals of buying a home. Follow along below to learn more about how you can afford a mortgage down payment for your dream home in Whitehorse!

What to Know About Down Payments in Canada?

In Canada, there are specific guidelines that you need to follow when it comes to determining how much money you should save for your down payment. Regardless of whether you are a first-time buyer or you’re upgrading your home, the rules for the minimum down payment in Canada are as follows:

1. Homes $500,000 and below require a minimum down payment of 5%.
2. Houses between $500,000 and $999,999 require a minimum down payment of 5% of the first $500,000 of the purchase price and 10% of the portion of the purchase price above $500,000. For example, to calculate the minimum down payment on a $600,000 home, you would first need to calculate 5% of the first $500,000 which would be $25,000. Then, you would need to calculate 10% of the remaining balance, in this case $100,000, and add this to the first calculation. Together you should get a total of $35,000.
3. Any home equal to or above $1 million requires a minimum down payment of 20%. 

If you fail to meet the minimum down payment requirements when purchasing a home, you’ll need to pay for mortgage loan insurance. Typically this happens when you have a down payment of less than 20%. In some scenarios, you’ll need to get mortgage loan insurance regardless of how big your down payment is, simply because you have a poor credit history or if you’re self-employed. If you need to get mortgage loan insurance, your lender will coordinate this on your behalf. 

In general, mortgage loan insurance premiums range from 0.6% to 4.5%. However, your premium will be determined based on the amount of your down payment. For those with greater down payments, the premiums will be less. 

Creative Down Payment Solutions From Your REALTOR® in Whitehorse

One of the first methods that we will examine is leveraging your RRSP (Registered Retirement Savings Plan). If you’ve been adding to your RRSP, you can use it to help you put a down payment on a house. This is possible when you partake in the Home Buyers’ Plan. The HBP allows buyers to withdraw up to $35,000 from their RRSP without being taxed if it is their first home purchase or they haven’t owned a home in 5+ years. If you’re purchasing with another person, you can get up to $70,000 for your down payment. However, all money withdrawn from your RRSP will need to be paid back within 15 years to avoid fiscal impact.

The next strategy for saving is to save consistently and with a plan. While this may seem self-explanatory, many home buyers fail to save a consistent amount each month. To avoid falling short on this goal, it’s a good idea to set up automatic withdrawals. Once you have this in place, it’s best to make monthly contributions of the equivalent of what your future mortgage will cost. For example, if you are renting a home that is $1000 per month and you anticipate that your future mortgage payments will be $1800 per month, making monthly investments of $800 will help you save faster and prepare you for the additional cost of living.

The last tip is to downsize your lifestyle while you are saving up for your next mortgage. A common way that people accomplish this is by moving into a smaller living space with cheaper rent to help them save more money. For couples with two vehicles, another effective way to downsize is by selling one of the cars. Cutting down on car loans can seriously increase your flexibility for saving. 

Contact a Trusted REALTOR® in Whitehorse Today!

Saving for a down payment is one of the hardest parts of buying a home in Canada. If you’re interested in learning more about saving for a down payment in Whitehorse contact me today. As your REALTOR® in Whitehorse, I’d be happy to help answer any questions you have about buying/selling a home. If you have any further inquiries about real estate in the area, please feel free to reach out to me! Be sure to check out my blog again next month for more exciting real estate content. I look forward to working with you in the near future!