Dreaming of owning your own home is a common dream, that takes a lot of work and prepartion. I hope with the steps I will outline and the resources provided that this will help bring you one step closer to realizing your dream.
Step 1: Your budget
Setting up a budget is the most important first step because it allows you to set limits and to look at all of the financial aspects related to buying a property.
"Figuring out how much money you can afford to spend each month is only part of the equation. You may want to make a downpayment - the money you put toward the price of a home. A downpayment generally ranges from 5% to 25% of the purchase price. Some institutions provide no-downpayment mortgages. If you have a good credit history, but haven't been able to save the downpayment, this option may be for you. Keep in mind that the higher your downpayment, the lower the interest costs over the life of the mortgage." Canadian Banker's Association
Downpayment Sources
- liquid assets taken from your savings account
- deposit certificates, savings bonds
- mutual funds or RRSPs
- money you receive as a gift, under certain conditions
- the value of the land on which you build your home, if you are the owner
How Much to Invest
The standard minimum downpayment is usually 20% of
- the cost or,
- the market value of the property
You can borrow money even if you don't have the minimum downpayment. To do this, you must insure your mortgage with the Canadian Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada (GFC).
Your downpayment can be as low as 0% or 10% of the property value. With a downpayment of 10% you may be eligible for a reduced premium with Genworth Financial Canada, under certain conditions. This exclusive premium is only available for Quebec Residents.
The insurance premium varies according to the downpayment and must either be paid at the time of service or added to the mortgage amount. It varies between 0.5% and 3.10% of the amount of the mortgage , depending on the size of the downpayment.
In addition to the downpayment there are other start up costs. Follow the provincial links to see a sheet of start up costs for Ontario and Quebec.
Do the Math
In order to not overcommit yourself financially you must first do the math, these easy to use calculators will help:
The Two Golden Rules of Borrowing
- No more than 32% of your gross household income should be spent on housing costs
- No more than 40% of your gross household income should go to repaying debt
Stay tuned to see step 2: choosing your home
3 comments:
Hi there,
Not too sure why you wrote: "When you get a mortgage loan you are required by law to invest an amount taken from your personal assets; this is a downpayment".
There are now "100% mortgages", or "Zero Down mortgages" where you don't need a down payment at all.
I am happy to say that I qualified for a "Zero Down Mortgage", and it has made my dream of owning a home a reality much sooner than I expected.
Hi roz:
Thanks for the comment. I got that particular definition from the Desjardins website. Note to self in future check more sources. Of course I realize there's zero downpayment mortgages. As such, I've re-posted that entry with a more accurate description provided by the Canadian Banker's Associatio. Thanks for the input !
Excellent!
Keep up the good work...i visit your blog everyday :)
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