The Down Payment

Housing prices continue to soar in most urban-city centers. Wages are getting squeezed tighter and tighter and the cost of living keeps rising. It’s time to face facts. Many of us may not be able to afford to buy a house.

Have you heard of the 20% Rule?

To qualify for a conventional mortgage, you need to put down 20% of the market value of the house. You can put down less than 20% as a down payment, but if you do, you’ll be charged a very costly fee called mortgage insurance.

In Canada you can put down as low as 5%. The less money you put down, the more mortgage insurance you will be charged.

In Canada, if you purchase a $300,000 home and can only put down $15,000 (5%), you will be charged 2.75% of the total mortgage value, and in this case $7837. This $7837 will be rolled into your mortgage.

In addition to this, there are tons of other costs such as Home Inspection, Land Surveys, Legal Fees etc.

A good rule of thumb is to assume that you will also need to save 2.5% of the value of the home for these fees.

If you’re willing to take on the additional mortgage loan insurance, I advise to put no less than 10% to be sure you can actually afford the monthly payments.

Therefore, in a perfect world, you should have 22.5% of the value of your dream house in the bank before you can technically afford it and in a less-than-perfect world, no lower than 12.5%



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