As part of our Guest Blog we have asked Erica Vincelli, a licensed Ottawa Mortgage Agent, to share her knowledge and expertise with you!
One of the biggest challenges when wanting to buy a home is the down payment. You ask yourself, “How do I come up with $20,000?”. Many people think your down payment can only come from savings but there are other sources that I will share with you in this blog.
As a first-time home buyer, you are allowed to use up to $25K of your RSPs as your down payment. If you don’t currently have RSPs then one strategy is to start saving money in your RSP account and then use the rebate from your taxes to top up the savings so that accumulates faster. You can also get a 2 or 3 years RSP loan to fast track that savings and then use some of the tax rebate to pay your loan back faster. I am not one to suggest taking on more debt, you weigh risk versus reward and in SOME cases, it can work as long as you have a good pay back strategy in place. This isn’t as confusing as it might sound so call me today so I can help you understand if this is the right option for you.
There are still some banks and lenders who allow your down payment to be borrowed funds such as a loan or line of credit. This can be tricky because again, I am not encouraging you to take on more debt, however, in some cases this can work BUT you have to be sure that your income can service your down payment loan and the mortgage you are wanting to get.
As the mortgage rules get tighter and tighter, more and more down payments are coming from parents, grandparents and other family members in the form of a gift. This is perfectly OK as long as the giftor signs a gift letter (provided by the lender) to confirm this is a gift without any repayment. Are you in your parents or grandparents will? Ask if they would gift you the money early. It might be very special for them to know that their money is going to you and building your financial future.
ASSESS YOUR AFFORDABILITY:
The most obvious way to have a down payment is savings but as we all know, this can be very hard. The minimum down payment for an owner-occupied home is 5% (plus 1.5% for closing and legal costs). Take a look at your affordability, maybe you only need to save up $10K for a smaller home as a started home and then use the equity of the house to buy a bigger house in a few years. You don’t need to have 20% right off the bat. If you only qualify for a $200K property then work on that down payment now and find a good property with strong appreciation rates where you can use the equity down the road but you are already in the housing market so you are already one step ahead.
Each source of down payment is subjective to you and your lifestyle. Be sure to recognize what you can do and work with the right team of professionals to help get you there faster. A financial advisor can help you by looking at your finances and show you where you can save and /or invest your money. A realtor can look at the areas where the best appreciation rates are to make the best investment. A mortgage agent, like myself, can analyze your financial profile and determine your affordability. We also all work together with the same end game in mind, with YOU becoming a home owner and on the right path to your financial success.
If you have any questions, please call me and we can set an appoint by phone for your convenience to review your financial profile.
Thanks for reading, until next time!!
Winner of 2013 Faces Magazine “Ottawa’s Best Mortgage Agent”
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