When you purchase a new home, you will be asked to provide a down payment on the property. This is the amount of money you are willing to pay upfront for the purchase of the home. This money is deducted from the purchase price and you will need to acquire financing for the remaining cost.
It is recommended that you provide at least 20% of the home’s purchase price as a down payment. This means that if you are considering a home that costs $750,000 in Markham, you should provide a minimum of $150,000 as a down payment. This does not include closing costs and other expenses.
Do I Need a 20% Down Payment?
Saving 20% of a home’s purchase price can seem like an impossible task, especially with the increasing home prices in the GTA. While it is wise to provide the 20% down payment, it is not necessary. In Canada, there are certain minimum amounts you must meet to acquire the financing for a home.
If you purchase a home that is $500,000 or less, you must provide at least 5% of the home’s purchase price.
If you purchase a home that is $500,000 to $999,999, you must provide 5% of the first $500,000 of the purchase price and then 10% of the portion of the price above $500,000.
If you purchase a home that is more than $1 million, you must provide the full 20% of the purchase price.
Keep in mind that these minimum requirements may change depending on your financial situation. For example, if you have poor credit or you are self-employed and do not have a steady income each month, your lender may request that you provide a larger down payment.
Mortgage Loan Insurance
If you do choose to provide less than 20% of the home’s purchase price, you will be required to purchase mortgage loan insurance. This is designed to protect the lender in case you cannot make your mortgage payments month after month. In most circumstances, the monthly fee for this insurance will be included with your monthly mortgage payment. However, there are options to pay it upfront.
The amount you will pay in mortgage loan insurance will differ and will depend on your down payment and current financial situation. However, you can expect the premium to range between 0.6% to 4.5% of your sale price. Also, in Ontario, you will be required to pay a provincial sales tax on all premiums.
The financial side of purchasing a home can be confusing and a little overwhelming. If you have any questions or if you are ready to purchase a new home, contact Markham real estate agent Martin MacFarlane today.