How Much Money Should Your Down Payment on a First House Be?

It is normal to feel pressured to get a down payment when you are a first-time homebuyer. Especially when interest rates are low and house prices could rise. You may have already explored great ways to save a down payment, But a trickier question is how much that amount should be. Worrying about what Canadians usually put down or are obsessed with entering the ASAP market can lead to great financial regret over time. Instead, opt for a down payment that meets your goals while meeting your needs.

What The Minimum Deposit Is And Why It Doesn't Work For Everyone

The minimum down payment on a home in Canada starts at 5% for properties costing up to $500,000, and from there the down payment goes up. When deciding whether to rent or buy, many people think about buying 5% and mortgaging the other 95%. After all, it can take many years of diligent saving to save that 5%. Rising prices can also increase the pressure to buy. The biggest fear for many is that a property on which they can now afford a 5% deposit could soon be out of reach - even if they save at the same rate as before.

These are all very real worries. However, don't let the fear of missing out on a home drive you into debt that you can't afford. The fact is that the biggest outlay on buying a home is not the down payment. It's the regular costs you'll have with the home, which go well beyond mortgage payments; they also include property taxes, shift fees, utilities, insurance, and maintenance.

The bottom line is that the minimum down payment maximizes your mortgage debt. This is not only because of the higher mortgage but also because you have to pay the highest mortgage insurance premium. If you add that to all the other costs of a home. It just doesn't work for many who are already pushing to the limits of what they can afford. Entering the housing market is great, but forcing yourself in and then leaving because you are behind on payments is the worst outcome.

How To Get Help Buying Your First Home

Buying your first home is a great financial achievement, and there is nothing wrong with getting help to achieve it. One option that every Canadian has is the Canadian government's incentive for first home buyers. How this works is that the government gives you either 5% or 10% of the property you are buying to make your down payment, which reduces your mortgage payments. However, it also means that the government owns 5% or 10% of the equity of your home that you will have to repay after 25 years or when you sell. There are other costs to this incentive, so check with your lender before deciding whether to use it.

Another way to get help buying a house is to buy with someone else. The power of multiple incomes cannot be underestimated, and working with a partner has many advantages in terms of money management. Parents who are financially well off at the moment can also choose to give part of the down payment to their children. The disadvantage is that this can be a great burden for parents, especially if they are still saving for retirement. Instead of a gift, a joint mortgage is another option where the co-signers can split both the cost and equity of the property. However, as with all joint debts, each co-signer is 100% responsible for making 100% of the payments, which also leads to a complex tax situation, so make sure that all parties are consulted independently by an accountant and lawyer before committing to anything.

The Best Deposit You Can Afford

Whether you get help or go it alone, the best down payment on a home is the one that gets you the best mortgage. So what is the best mortgage? The one that fits your budget. Once you have pre-qualified so that you know the maximum mortgage for which you can be approved. Go back to your budget to find out what maximum payment really works for you. This is important because it is very possible to be approved for a mortgage that your household cannot handle. Instead of sticking to the credit limits offered by your lender, you should think critically about your overall financial situation, including your income, your ongoing monthly and annual expenses, your savings, and debts.

How To Check If Your Mortgage Payment Is Going To Be Too High Or Not

A good, risk-free way to check what you can handle is to "try" a mortgage. Let's say Bill pays $800 a month to rent a place. He wants to buy a house and thinks his budget could fit $1500 a month for it. Such as mortgage payments and other housing costs such as property taxes, shift fees, insurance, and utilities. To see if he's right, he spends the next 6 months pouring an extra $700 into his savings while still renting for $800. By the end of the six months, he will know for sure whether he can cope with the higher monthly expenses, not to mention the additional $4,800 he now has to spend to buy his own apartment!

The mortgage that fits your budget should determine which home you buy and how much down payment you need to make, not the other way around. It can be tempting to put all your savings into a down payment, but keeping an emergency fund is always important - especially when you move into a new home. And, don't forget all the costs associated with actually buying, moving, and furnishing your new place with the decor you like.

How To Improve Your Budget To Help You Buy A Home

Just as others can help you get a down payment on a home, a nonprofit credit counseling organization is a great resource that can help you figure out and improve your budget. It's also important to get a second opinion on a big financial decision like this, and a credit counselor would be happy to offer you his professional assessment in a free and confidential appointment. Contact a nonprofit credit counseling organization near you today to learn more, and good luck finding a home!