by Nutan Brown
on Wednesday, June 3rd, 2020 at 10:31am.
Buying a home is a huge commitment, and likely the most expensive purchase you will ever make. The first financial cost you can expect is the down payment. A down payment is the amount of money put towards the purchase of a home, which represents a part of the total payment often covered by a mortgage loan.
How much is a down payment?
In Canada, the down payment amount depends on the price of the home. The minimum down payment is 5% on the first $500,000 of the home price and 10% on any portion exceeding $500,000, up to $1 million. Homes priced above $1 million require a minimum 20% down.
The more you can put for your down payment the better. Benefits of a bigger down payment include lower monthly mortgage payments, paying less interest over time, and with 20% down or more you don't have to buy default insurance.
Before you even start looking at homes, come up with an ideal home value that you can afford. Calculate the percentage of the total home value that you can expect to pay and start a savings account strictly for the down payment.
Create a timeline based off your current financial situation to determine how much you can afford to save, and how long it will take to build your savings.
To help ease the blow of saving such a large sum of money, cut out unnecessary costs such as take out food, vacations, and impulse buying. Put any cash bonuses, government credits and birthday money into your savings to reach your goals sooner.
There are also government programs designed to help ease the financial burden of first time buyers. Be sure to check out the First Time Home Buyer Incentive and Home Buyers Plan to see how they can benefit you.
I wish you luck in your home buying journey! Don't hesitate to reach out if you have any home buying/selling questions in the Toronto area.