Having a down payment secured for your mortgage is a crucial step in the mortgage journey. In this article we will dive into everything you need to know about down payments and the most important steps to take, so you can plan properly without surprises before closing your first mortgage in BC.
Saving for a Down Payment
A down payment is a lump sum of money you put down on a mortgage to cover the initial portion the home price. It can be paid in cash or cash-equivalent but can’t be put on credit.
Saving up for a down payment might seem daunting, especially when considering buying a home in British Columbia. Don’t panic. There are various tools and resources to help guide you through this process. If you have questions about minimum down payment rules, or your purchasing power based on how much money you put down, the CSCU team of Mortgage Specialists is more than happy to walk you through your options.
How to Calculate your Down Payment.
Minimum Down Payment Requirements for Insured Mortgages in BC:
- If the listing price is under $500,000, the minimum down payment is 5%.
- If the listing price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
Insured mortgages allow you, the borrower, to qualify for a lower down payment and better rates (depending on lender qualifications). Why? Because the borrower (you) pays the insurance premium, so the lender doesn’t acquire any additional costs. Lenders will typically offer the lowest rates to these insured borrowers.
If you're unfamiliar with the concept of Insured Mortgages, check out our post where we deep dive into everything you need to know
Benefits of Putting Down a Smaller Down Payment:
Get into your home quicker.
One of the biggest barriers to putting down a 20% down payment is saving the required funds. For individuals who have the requisite cash available, a 20% down payment makes sense. You’ll pay less interest, no mortgage default insurance costs, and your monthly mortgage payment will be lower.
However, for most first-time homebuyers saving for a down payment – especially on a mortgage that is over 1500,000 - it may not be as simple. A lower down payment allows you to get into your dream home faster.
Start building home equity faster.
The sooner you get into your new home, the sooner you'll be able to start paying down your mortgage. And as you start making mortgage payments, the more of your home's principal balance you'll pay off and your equity will grow. Your home equity can act as a financial tool you can leverage to pay for home renovations, to make other large purchases like a car or boat, or to even buy a second property.
- If you happen to come into money via bonuses or inheritance, you can make a lump sum payment on your mortgage. CSCU gives you the option to prepay an additional 30% of your balance every year, whenever it's convenient for you
Your home equity is an asset. As you pay your mortgage, you gradually increase your ownership of the home.
First Time Home Buyers Programs
There are several resources and incentive programs available for first-time homebuyers to help you get into your dream home faster. The Canadian Mortgage and Housing Corporation (CMHC) has an incentive program that offers 5% or 10% of the home’s purchase price to put toward a down payment.
Additionally, first-time homebuyers in British Columbia may receive a refund or exemption on their BC property transfer tax.
Another opportunity would be to use RRSP (Registered Retirement Savings Plan) funds as part of your first-time homebuyer plan. The Canadian government’s Home Buyers’ Plan (HBP) allows individuals to borrow money from an RRSP if:
- They are a first-time home buyer; or
- They have separated from a spouse or common-law partner for a minimum of 90 days and started living separately and apart anytime in the preceding 4 years due to a breakup (conditions apply).
The Home Buyers' Plan (HBP) is a program that allows first-time homebuyers to withdraw from RRSPs to buy or build qualifying homes. Your RRSP issuer will not withhold tax on withdrawn amounts of $35,000 or less.
If you have questions about first-time home buyers programs or the qualification process, reach out to a CSCU mortgage specialist today!
- Insured mortgages allow individuals to make a down payment as low as 5% toward the purchase of a home.
- High housing prices in Metro Vancouver make it difficult to save for a large 20% down payment.
Lower Down Payments may help you:
- Get into your home faster
- Build equity sooner
- There are various First Time Home Buyers Programs that are available to new homeowners to help them qualify for a lower down payment and get into their dream home faster.
We know that securing your first mortgage in BC can be an overwhelming process. We're here to help make your mortgage journey as simple and enjoyable as possible – after all, at CSCU we're for people, not profit. Our mortgage specialists will help guide you through the process with step-by-step instructions and expert advice along the way.
If you'd like to know what kind of mortgage and rates you can qualify for, book an appointment with our Mortgage Specialists