Canada is one of the best countries in the world to live in, and the nation has so much to offer, starting from great outdoors, shopping malls, places for recreation, to new business opportunities for individuals.
Real estate business is thriving across Canada, and a lot of people are investing in properties to make the most from it. If you are also thinking about investing in residential or investment properties, it’s going to be advantageous. But the question is that are you ready to pay full payment at once?
The real estate market in Canada has grown more prominent over the years, and the open-door policy for buying property has grabbed the attention of investors and homeowners in recent years. Investing in properties in big cities can cost around $820,000 or more depending on the locations.
It is not an easy task for buyers to pay at once. The government has introduced a flexible down payment policy so that individuals can get maximum support while buying properties in Canada. The down payment is the initial ownership stake in the property that you have to pay to the lender to get the money.
Private mortgage loans will cover the rest of the price, and if you are looking for the simplest way of buying properties in Canada, you should not miss this article.
Minimum Requirements for Down Payment in Canada
In case readers are not aware of the requirements for the down payment for properties in Canada, they should check it even before making a decision. Once the first time home buyer gets an idea about the price, it will be easier to invest in the same.
There is no fixed amount for a down payment, and it depends on the purchase price of the house. For example, if the purchase price is lesser than $500,000, then the minimum down payment will be 5%. In case the purchase price is between $500,000 and $999,999, you have to pay 5% down payment for first $500,000 and 10% over $500,000.
If buyers are planning to invest in properties that cost above $1,000,000 or more, people have to pay a 20% down payment for buying the property.
CMHC insurance or mortgage default insurance is mandatory on all mortgages with down payment lesser than 20%, and hence, around 30% of the buyers prefer paying 20% down payment so that the insurance is no longer required.
Suppose you are planning to invest in residential or investment property in Canada, you should use down payment calculator, and get an idea of how many years do you need to pay the loan or mortgages.
Common Concerns for Buyers
Investing in a dream home is natural for individuals, but the skyrocketing price of property seems to be a concern for many. If you are also worried about the cost, don’t worry, there are several plans available for property buyers, and you can take a look if you are willing to invest in residential or investment properties in Canada.
In the next section, we will discuss the available plans that will help a first time home buyer in making the right decision.
HBP/Home Buyers’ Plan
Buyers can avail of Home Buyers’ Plan while buying properties in Canada, and it will be a great help for their down payment. As per the Home Buyers’ Plan, individuals can withdraw up to $35,000 from the Registered Retirement Saving Plan (RRSP), and it is tax-free.
Once you withdraw the amount, you will have 15 years for repaying the loan or mortgages, and if you are facing budget-related issues, this will be a way out to get rid of the problem. If you are thinking about further considerations, please think about whether you can afford to repay the loan within 15 years.
If your savings are small, consider the retirement savings before opting for it. A failure in repayment will result in a high penalty, and buyers need to make the final decision after weighing the pros and cons of the plan.
First Time Home Buyer Incentive
As mentioned before, the Canada Government has introduced several policies to make investment more manageable, and, if you are worried about the down-payment, you can take help from the first time home buyer incentive, which is a shared equity mortgage.
The Government of Canada will offer financing without interest, and in this way, you can save a lot on the monthly mortgage payment. Opting for this plan will be beneficial as buyers can purchase existing property just by paying 5% of the purchase price, and in the case of a newly constructed home, it will be 5% or 10%.
If you opt for first time home buyer incentive, repayment needs to be done after 25 years or while selling the property. The best thing about this policy is that individuals can repay the amount at any time without any pre-payment penalty, and you should check it if you are looking for simplifying the process of down payment.
How to Secure Down Payments for a Property?
Investing in real estate business is advantageous, and the trend has become common in recent years. Leading private mortgage lending organizations receive hundreds of questions from individuals. Many people ask about how to secure down payment for buying a property.
Well, there are no written guidelines for doing it, but we can help you to get an idea so that the process seems more straightforward. Here are some tips for individuals, and we hope it will be helpful.
Savings is one of the most effective strategies for securing down payments, and if you think it will be tough, you should learn how to spend systematically. Financial advisors advise to set up automatic withdrawals so that repaying gets easier for homeowners.
For example, your rental unit costs $500, and you will have to pay $1100 per month for the mortgage payment. Your task is to save $600 monthly so that you can pay $72000 at the end of the year. Investment for home is a long term investment, and savings can help to secure the down payments in a hassle-free way.
The skyrocketing price of real estate in Canada has made it almost impossible to buy it at once, and most people prefer paying a down payment for the same. If individuals are paying student loans, it will take years for payment, and an additional down payment can make it a headache for the house owners.
Luckily, lenders allow borrowers to take cash in the form of gifts, and it will be helpful for house owners if they get the money as gifts. It will help them from facing financial obstacles, and they can get rid of the hassle of a down payment as soon as they repay it.
Homeowners must remember, they cannot take money from people who have direct interests in the selling of that property. In case of taking cash in the form of a gift, the gifter will have to submit a gift letter clarifying the money is not a loan or mortgages; instead, it’s a gift.
Borrowing money will be the last option for homeowners if they are searching for the simplest ways to secure the down payments. If you are living in Canada, you can check the Cash Equity/Borrowed Down Payment Program, which allows you to borrow some money.
The offer can be availed by people, who have less than 10% down payment for the purchase price, and this is an alternative way of securing down payment.
Always remember, borrowing will increase the debt-to-income ratio, which is not a good thing. You should avoid borrowing money unless all the remaining options are unavailable for you. The guidelines mentioned above will be helpful for individuals. People are advised to assess the finances so that they can understand whether investing in a property is the right choice for you or not. If you still have confusion, you can consult with a professional financial advisor or qualified mortgage brokers on the same.