How Much Money Does a First-Time Home Buyer Really Need for a Down Payment? Answer: $0 if you have good credit.
If you're a first-time home buyer, you may or may not be aware that you will need to come up with a minimum amount of money as a down payment. In Canada, this minimum amount is 5% of the purchase price of the property, because the mortgage can be a maximum of 95% of the value. Behold: If you have good credit, there is a program where you can borrow the 5% down, and an expert member of Dominion Mortgage Broker can do a pre-approval for you to see if you qualify. Already have 5% saved, or family is giving it to you? Then let’s get you preapproved to see if you qualify for a mortgage for the other 95%. Here are a few other important considerations to keep in mind when shopping for your first home.
The 90-day Rule
Be prepared as a first-time home buyer to provide a 90-day bank statement to show the source of your funds for the downpayment. It's not good enough to show lenders that you have the funds available in a bank account; you must also show the transactions in that account for at least 3 months. In addition, any large or unusual deposits – such as gift money from parents, money earned from the sale of another asset (such as a car), or transfers from a TFSA must be verified by the lender before they can be used toward the down payment of a new home. Don’t take it personally, this has to do with Canada’s Anti-Money Laundering laws.
Closing Costs and Legal Fees
Closing costs and legal fees are often overlooked by the first-time home buyer when saving up for a down payment. In Alberta, a home inspection often costs around $500, and legal fees are usually around $1200 to $1500. As a first-time home buyer, plan to have these funds in addition to the down payment. Often you will have to show the bank that you have these funds available as well as the down payment requirement above.
Home Purchase Price
The amount of money that a first-time home buyer will need to come up with for a down payment depends on the purchase price of the home he or she would like to buy. For example, if they qualify for a mortgage to buy a home for $300,000, the down payment is $15,000, plus approximately $2000 of closing costs, the buyer should be prepared with $17,000 available. If they spend $400,000 on a home, then the first-time home buyer will need to make a down payment of $20,000 plus the $2000 in closing costs for a total of $22,000.
Unsure of how this applies to you? We can help you figure it out. Contact us to discuss your down payment requirements and qualifying for a mortgage as a first-time home buyer.Request Mortgage Info