The minimum down payment for insured mortgages is now 5% of the purchase price of the home. The amount of mortgage insurance (CMHC) decreases as the down payment increases. With a 20% down payment no mortgage insurance is required.
The Government recently eliminated 100% financing as an option for Canadian homebuyers. However, alternatives still do exist for buyers who haven't been able to save enough for the minimum 5% down payment. The following down payment options offer solutions for those who qualify.
Gifted Down Payment:
Lenders will allow the down payment to come from immediate family members (parents, grandparents or siblings) in the form of a gift. Parents or grandparents will often help a child or grandchild with their first home purchase without any expectation of repayment. The family member must fill out and sign a gift letter confirming that the funds are indeed gifted. If the money came from anyone else (ie: friend or co-worker), it would be treated as a loan since non-family members usually expect to be repaid at some point in the future.
Borrowed Down Payment:
If the homebuyer has sufficient income, the lender may allow the down payment to be borrowed as long as the payment is included in the total debt service ratio and total debt payments remain below a set percentage of income. Mortgage insurers charge a slightly higher premium to insure this type of mortgage.
Cash Back Mortgages:
There are two basic kinds of cash back mortgages. With one type, the borrower must come up with the down payment in the traditional manner. Shortly after closing they would receive a cheque from the lender for a predetermined sum (usually 3 to 5% of the mortgage amount). A credit score above 600 is required to qualify.
With the other type, you don't need money for the down payment but you will need enough to cover closing costs. The lender will send the money for the 5% down payment to the lawyer on closing. A credit score of 650+ is required for this mortgage. In both cases, the interest rate is higher so that the lender is able to recoup the cash back amount plus interest over the term of the mortgage. If the borrower exits the mortgage before the end of the term, the lender will 'claw back' whatever amount has not been recovered.
Contact Janet MacDonald at 613-561-5047
,
Colin Birkas at 613-929-7629 or
, or Jeff Dillon at 613-453-3663 or
for more information on these Down Payment Options.
