If you’re thinking about buying a home in Canada, working out exactly how much house you can afford is a really important decision. Not only because it determines how money you will need to have saved, or put aside for your down payment, but also because it is a long-term financial commitment
In Canada, it is recommended to have a down payment of around 20% saved up, before buying your home. Whilst some lenders won’t insist on this amount, it is really the minimum you should consider. Being tempted to place a smaller deposit, and get a bigger value home might seem like a great idea at the time, but the long-term affordability of the property is more important. Working out the right amount of down payment to save is essential, in some cases it can make-or-break your application, so getting it right first time is crucial.
How much do I need for a down payment?
In Canada, the minimum amount for a down payment is currently set at just 5%, so it can be a really tempting option to take the lower down payment choice. The alternative of course, with a higher down payment, means lower monthly payments for the life of the mortgage.
None of us know exactly how the future is going to unfold, more importantly, we do not know how our financial outlook will be for sure in say, five or ten years. This is why it is important to try and plan for all eventualities. After all, nobody wants to end up in a situation whereby they cannot afford to pay for their home and risk losing it alltogether, along with any monies which have been paid in.
The Bigger, The Better
The best plan when it comes to deciding on how much you need to put forward on your house has to be “as much as possible”. The more you put down, the lower your monthly payments will be. Moreover, the bigger your down payment, the better the interest rate you will receive from your lender. If you do not meet the criteria which is offered by the lender, or have been unsuccessful in your mortgage application, then you may be able to increase the size of your down payment which will result in you needing to lend less money.
New to Canada?
If you are new to Canada, there are plenty of lenders who will offer a mortgage to you. One of the most crucial steps a new immigrant to Canada can make is to purchase a home. It will help you to become more established in the country and there are many different mortgage options available to you. Whether you have citizenship or not.
Your down payment can be as little as just 5%, however it is important to note that a smaller down payment will need to be backed up by a great credit profile and history, along with a good amount of income too, there is also a lot of paperwork needed to assure the lenders of your status and suitability. For anyone who is making a down payment which is more than 10% of the value of the property, there is much less documentation needed than if you only put down 5%.
In summary, when you are working out just how much house you can afford, the size of your down payment is a really important element of this process. Not only will it affect the long term affordability of your property, it will also help to dictate your interest rates too. The size of your down payment, will directly correlate with the size of the property you are looking to buy in Canada.