Buying a house is exciting process, it comes with making of lot of decision like evaluate your current financial situation, Identify related costs of buying a home, Determine which professionals can help you with your purchase, where to get your mortgage. One of the things you will need to buy a house is mortgage approval. In order to get your mortgage approved you are expected to have some of your money towards the down payment. There are few different sources you can use for down payment.
I come across clients who may not yet know or simply forget about different sources of down payment. Down payment could be your own saving, RRSP’s, Gifted Funds, TFSA’s and/or existing equity in your property U are selling. Minimum down payment requirements are 5% of the purchase price of the house and if you are buying house over $500,000, then you will need 10% of the portion over $500,000 as well.
Your Personal Saving can be used towards down payment Majority lenders require 90 days history of funds you are using for down payment if they are your personal saving. And also require explanation of any large deposits.
Gifted Down Payments can come from immediate family such as Grandparents, Father, Mother, Brother and/or Sister.
RRSP’s can be used by first time home buyers via the Home Buyers’ Plan up to a maximum of $25,000 per individual. Funds are to be there for 90 days and accessible before closing date. Some Employer RRSP Plans may NOT be eligible for withdraw.
Existing Equity is the Net Equity after selling your home, selling price minus outstanding mortgage amount, legal fees and realty fees in the process.
Apart from the down payment you will need 1.5% closing cost but it varies from province to province. It could be your savings, borrowed money or cash back from lender.
The closing cost includes:-
Land transfer tax: This is charged whenever a property changes hands and is based on the purchase price.
Legal fees and related expenses: Are fee paid to lawyer for completing all the legal documentation to register the title on your name and helping you with the transaction.
Title insurance: Title insurance covers problems that may arise due to title fraud, existing liens against the property’s title, undischarged mortgages and other issues relating to the property’s previous owners.