Before you even start to think about home insurance as a first time home buyer, a more pressing topic you’ll want to consider is what amount of down payment you’ll need to buy your first home.
WHAT IS THE MINIMUM DOWN PAYMENT REQUIRED TO BUY A NEW HOME?
The minimum amount you’ll need to pay as a down payment when buying a home in Canada depends on the purchase price of the home.
If the price of the home is under $500,000 then a 5% down payment is required.
e.g. 5% of $500,000 = $25,000
If the price of the home is between $500,000 and $999,999 then your minimum down payment will be 5% of the first $500,000 PLUS 10% of the portion above $500,000.
e.g. If you’re buying a home for $750,000 then your minimum down payment will be 5% of $500,000 ($25,000) + 10% of $250,000 ($25,000) = $50,000
If the price of the home is over $1,000,000 then the minimum down payment required is 20% of the price.
e.g. If you’re buying a home for $1,200,000 then the minimum down payment would be $240,000.
YOWZA!!
This naturally brings us to our next topic…
HOW TO SECURE THE DOWN PAYMENT FOR BUYING YOUR FIRST HOME
If you’re in the phase of life where you’re onto buying your second or third home then a down payment is not much of a factor for you since you’ll have the sale of your current home to put towards the purchase of your new home.
Unless you’re making a massive upgrade in home size and value, the sale price of your home should more than cover any down payment requirements.
However, for those who are looking to buy their first home, the down payment can often be the #1 hurdle standing between them and home ownership.
So how does one come up with such a large amount of money to use as a down payment?
LONG TERM SAVING
These days it’s especially smart to start saving early. How early? We’re talkin’ saving a portion from each of your first summer jobs pay cheques early.
It takes maturity and discipline to begin and maintain a savings habit, but the good news is that little by little, a little becomes a lot.
Thanks to things like compounding interest, putting a small portion of each pay cheque into a savings account consistently for 10+ years can add up big time.
If you’re lucky enough to meet a partner who has been saving the same way, then your combined savings could be all you need to achieve the level of down payment needed to buy your first home.
USE FUNDS FROM YOUR RRSP
Through participation in the Home Buyers Plan, you can withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) without being taxed.
This only applies to those who are building or buying their first home so it’s ideal for first time home buyers.
Special notes:
- If you’re buying your first home with a partner, then the two of you can withdraw up to $120,000.
- You’ll need to re-pay / contribute the amount withdrawn back into your RRSP within 15 years to avoid it becoming taxable income.
GET BY WITH A LITTLE HELP FROM YOUR FAM
While not feasible for every family, older generations gifting their kids and grandkids enough money for a down payment has been seen more across Canada in recent years as the price of homes has increased.
The ultimate form of paying it forward.
Another way families can give a major assist to first time home buyers is by selling their home to them at a lower price than they would have on the open market.
Nowadays it seems tougher than ever to be able to afford the down payment for a new home. Higher costs of living make it tougher for the current generation than many of those who came before them.
However, it’s not impossible and we hope some of the information you’ve read here has helped give you a better understanding and game plan to turn home ownership from a dream to reality.
Erie Mutual Insurance proudly serves the commercial insurance, farm insurance, home insurance and auto insurance needs of members throughout Southern Ontario including Haldimand, Niagara and Hamilton.
Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.
