Recently I worked with a couple who were selling their home in northern B.C. and moving to the Okanagan.
It had been many years since they applied for a mortgage, as they had been in their home for more than 20 years.
When we were looking at different options for them, we discussed the minimum down payment they would need. Because of the price difference between the two areas, they were concerned they would not have enough of a down payment to buy a home.
They didn’t realize they could get into a home (under $500,000) with 5% down. They thought they would need a minimum of 10%.
I’ve run into a few people who thought the same thing. Not to age myself, but when the 5% down payment option was introduced, it was initially available to first-time buyers only. That changed over time.
What has also changed is the minimum down payment for homes priced over $500,000.
The minimum down payment for homes in that range is now 5% of the first $500,000 plus 10% of the purchase price over $500,000.
As an example, if you are buying a home priced at $750,000, your minimum down payment will be $50,000. Five per cent of $500,000 is $25,000. Ten per cent of the purchase price over $500,000 in this example is another $25,000 (750,000 – 500,000 leaves 250,000 multiplied by 10%).
At price points over $1million this changes again. A minimum of 20% is required. Some lenders also use a sliding scale to calculate the required down payment for homes priced over $1 million.
Some lenders will require a down payment larger than 20% as the price of the home you are buying increases.
The minimum down payment can apply to a second residence as well. I am seeing more situations where spouses live or work in different communities and rather than rent, they are opting to purchase a second home.
If you have been holding off on a purchase thinking you need 10% down, it will be worth looking into exactly what you need for a down payment. Speak to a mortgage professional to find out exactly what you need to buy your next home.
I hope you enjoyed the Canada Day weekend.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.