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4 Misconceptions About Down Payments
Down payments are a critical aspect of buying a home.
But there are many misconceptions that can lead to confusion and missed opportunities.
This article will cover the four most common myths about down payments.
I will reveal the truth behind them.
Now, let’s dive in.
1. Must Have 20% Down
The Misconception
Many people believe that you must have a 20% down payment to buy a home.
A 20% down payment will drop the need for mortgage insurance and lower your payments.
But it is not required.
The Truth
In Canada, you can buy a home with as little as 5% down.
Even when buying your second, third, or fourth property.
And even if you’re holding on to your current property as a rental.
A larger down payment can save on mortgage insurance.
But, waiting to save 20% could mean missing out on home appreciation and paying higher prices in the future.
Know your options and where you stand.
If 20% down is too much, then buying with less may work for you.
2. Neglecting Other Closing Costs
The Misconception
Some buyers focus on saving for the down payment.
They forget about the other closing costs of buying a home.
The Truth
Closing costs are 1.5% to 4% of the purchase price.
They include;
- legal fees
- land transfer taxes
- home inspections
- appraisals
- PST on mortgage insurance
- title insurance.
It’s essential to budget for these costs to avoid financial surprises at closing.
3. Bigger Down Payment Saves You Money
The Misconception
A larger down payment can lower your monthly mortgage.
It can also reduce interest costs and cut the need for mortgage insurance.
But, it won’t always save you money in the long run.
The Truth
It’s true that a larger down payment will lower your mortgage and monthly payments.
The additional funds used could earn more if invested elsewhere.
We must weigh the cost of using a larger down payment against investing that money.
Consulting with a financial advisor can help you make an informed decision.
I know some great ones, so reach out if you have any questions!
4. Gifted Down Payments
The Misconception
Many believe that down payments must come only from their savings.
They think gifted down payments are not an option.
The Truth
Gifted down payments are a viable option.
They can come from immediate family, such as parents, grandparents, siblings, and children.
Even if your family doesn’t live in Canada, this could still be an option for you.
However, the funds must be a true gift, with no repayment expected.
The giftee must sign a letter confirming this and have a call with the lender.
Additionally, most lenders do not allow gifted down payments for rental properties.
Always verify the specific requirements and guidelines with your lender or mortgage broker.
Knowing the truth behind these myths about down payments can lead to better decisions when buying a home.
By clearing up these misconceptions, you can buy a home with confidence.
Stay informed.
Consult with experts.
Make decisions that fit your goals.
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