Is it really that big of a deal?
All lenders expect you to put some cash down on your home purchase. The minimum here in Canada is 5% of the purchase price. The amount of insurance fees charged is relative to your best mortgage rate and your down payment amount. So remember, the more money you can save and put toward your down payment, the lower your mortgage payments will be.
Down Payment Due Diligence
This becomes increasingly important if your credit history is less than spotless. Some lenders will overlook past credit blemishes, not verify income and other financial conditions, if you have 35% to 40% of the purchase price available upfront as part of your down payment.
What you might not know about your down payment is that this equity goes to the banks in the unfortunate event of foreclosure. Hence, the larger the down payment the more protection the banks have. Be sure to have your down payment ready at least 30 days before you apply for a mortgage loan.
Ways to Accumulate a Down Payment
If you’ve already talked to low mortgage rate lenders and they’ve informed you that your down payment is insufficient, make it a priority and find ways to save money such as foregoing a new car or a vacation.
If you have enough equity in your RRSP, you can borrow money from this investment account in order to help increase your down payment. Canadians are entitled to borrow up to $25,000 from an RRSP. Furthermore, down payment funds can be borrowed from a secured line of credit or can be gifted from a family member.