Establishing your Mortgage down payment
Accumulating a down payment for a first-time homebuyer or a reno can be a challenge. Many younger adults have other obligations such as student loans, rent, and basic monthly expenses.
What are some tactical options to enable you to acquire a down payment:
- First, consider what you can afford By calculating what you truly can afford for a down payment or a renovation plan if you are considering staying in your current home, we can look at the refinancing scenarios. By calculating your post-reno value, you may be eligible for more mortgage money.
- Your RRSP may have the answer The Home Buyers’ Program (HBP) allows first-time home buyers up to $25,000 withdrawal (double that for a couple to $50,000). This manoeuvre is tax-free from accessible RRSPs. Consider that you will be taking on the responsibility of establishing a repayment plan. Canada Revenue Agency (CRA) allows the HBP insofar as you pay back your RRSP funds at approximately 1/15 of the funds borrowed per year, over 15 years. If those monies are not paid back on time, they will be taxed as income at your going rate.
- A tax-free gift of money Gifted funds from a parent or a blood relative may provide a downpayment. A written document must be provided, indicating that the funds are a gift without any requirement to pay back the money.
- A loan from a friend or relative Perhaps a grandparent or a friend can loan you the down payment with a fair interest rate, with a manageable repayment agreement. Consider also using other borrowed funds or using an unsecured line of credit.
- Consider a lower-priced starter home Consider a fixer-upper or a lower priced first home. With current lower interest rates, pay down the mortgage as quickly as possible. Then with your good credit rating, apply your new equity to purchase your dream home.