One of the biggest challenges facing buyers looking to buy a home or investment property, is saving for the down payment. Learn more here about the down payment on a house in Ottawa.
Your down payment can come from savings, a gift from a family member, RRSP if you're a first time home buyer, or from the proceeds of selling your current home. Regardless of where your down payment comes from, a major condition of each mortgage approval is to verify where your down-payment is coming from. This is to abide by fraud guidelines, as well as to ensure that you are not borrowing your down payment which would affect your debt to service ratios.
Learn more: How Much Down Payment do I Need to Buy a House?
For a down payment on a house in Ottawa, lenders will want to see a minimum of 90 days of history from the account the down payment is from, whether from your TFSA, checking, savings, or RRSPs. Please note, your statement must show your name, bank name and have a minimum of 90 day history of the funds. Any large deposits, i.e. transfers from another account must show the funds coming out of that account to the final account. In this case, both accounts would need to show 90 day history.
The idea is that you must have a paper trail of where the money came from in order to verify that it was from your own resources. This aligns with the Government of Canada regulations surrounding money-laundering and fraud.
For gifted down-payment, you will need a signed gift letter, which is often provided by the lender, and confirmation that the funds have been deposited into your account. Note that the gift must come from an immediate family member.
If your down payment on a house in Ottawa is coming from the proceeds of selling your current home then you will need to show the lender a fully executed purchase and sale agreement between you and the buyer of your home.
Aside from the down-payment, it is important to note that lenders will also want to see that you have 1.5% of the purchase price in savings to cover your closing costs.
Learn more: Closing Costs to Consider When Purchasing a Home
First time home buyers are able to use up to $35,000 now from their RRSP for a down payment on a house in Ottawa without having to pay taxes on the withdrawal. They changed the amount of $35,000 spring of 2019 and before that, it was a mxmimim of $25,000.
You must pay back the funds into your RRSP which is important to note.
This program is for those looking to buy their first house however you can be considered a first time home buyer again if you have not lived in a house for the last 4 years that you or your spouse or common law has owned.
Some of the conditions of using your RRSP for a down payment on a house are:
For the repayment, you typically have up to 15 years to put the funds back into your RRSP. You can repay as little as 1/15 of the amount you borrowed per year and can repay the full amount at anytime.
You can get a mortgage in Canada today with as little as 5% down or no savings for a down payment through a flex down mortgage. However, if thinking of putting more down, it is important to know the reasons to put 20% or more as a down payment.
Learn more: No Down Payment Mortgage Ottawa
Saving for a down payment can be tough. Especially when wanting to have a down payment of 20% or more. However if you’re looking to do a larger down payment, here are the top five reasons why you should have a 20% down.
By having a 20% down payment you now automatically have equity built into your home. This can protect you against a downturn in the real estate market. Also, if you need to sell quickly, if financial or health challenges arose and you didn’t have a back up plan, you would be more protected.
By putting down 20% the result will be smaller mortgage needed. This will save you interest when compared to putting down less than 20%.
One of the most exciting reasons to put down 20% is to save on the mortgage insurer (i.e. CMHC) premium. In Canada when you have less than 20% then mortgage insurance is required. The premium for this insurance is as high as 4% of your mortgage balance plus tax paid on closing, which can certainly add up.
By having a smaller mortgage as well as not having the mortgage insurer premium added to your mortgage, your payment will be smaller when compared to putting less than 20% down.
As just mentioned, by putting 20% versus a smaller down payment, your payment is then smaller. This improves your debt to income ratio which can help you qualify for a mortgage or potentially qualify for a bigger mortgage and therefore a bigger home.
Learn more: Types of Down Payment on YouTube