Home Financing Made Easy – Part 4

How much should you put as a down payment on a house?

Buying a home: finding it, financing it, insuring it – and all the other steps involved – isn’t a simple process.

Helping you understand that process is part of my job as a mortgage broker, and this blog brings you info you need in bite-size pieces.  So my last few blogs have been in a series format, detailing the professionals you’ll work with through the process.  The next series describes how the home financing process works, again in smaller chunks to make it a clear, easy-to-understand process.

Centum Future Mortgage Group arranges residential, commercial and construction mortgages. As a solution driven organization Future Group believes that a mortgage solution exists for everyone regardless of income or credit concerns. They believe that every consumer deserves the best rates, care and service when purchasing or refinancing a home or business.

The fourth in this seven-part series looks at what you’ve got to give the lender in order to get the loan.

Collateral

Collateral is a term for the amount of down payment that you are prepared to offer on a property.

A 20 percent down payment of the purchase price eliminates the need for your mortgage to be insured by the Canadian Mortgage and Housing Corporation (CMHC), Canada Guaranty or Genworth as required by most lenders. This insurance premium will be added to the cost of your financing, up to typically 2.75 percent of the purchase price with a five percent down payment. This rate decreases as your down payment increases. Private or sub prime lenders may not require insurance, but they generally seek comparable closing costs for self insurance purposes.

Most first-time home buyers are not in a financial position to provide a 20 percent down payment. Although zero-percent-down financing or ‘cash back’ options exist in the marketplace, these programs are reserved for those with above average credit.

Down payments could be gifted money from a relative, a withdrawal from your RRSP, or even borrowed money, although this debt will be factored into your financing equation.

Your credit score factors in here as well.  A better credit score may mean that less may be required from you in terms of a down payment.

I’d be happy to answer questions you may have regarding the purchase of a home or on how best to finance the purchase: 519-649-2502 Ext 3 or bruce_smith@centum.ca.