No down payment, no problem!
One of the biggest challenges when wanting to purchase a home is saving for the down payment.
Between rent, car payments, student loans and more putting aside an extra few hundreds or thousands of dollars a month can be hard.
If saving $250 a month, for example, it would take you five years just save the 5% down needed on a $300,000 home.
Traditional down payment can come from non-borrowed resources such as savings, RSP’s, a family gift and so on. However, if you are not able to have a down payment from these sources there is another solution.
This solution is called the flex down mortgage. The flex down mortgage allows clients to borrow their down payment from a loan, line of credit, credit card, family, friend, etc.
Let’s say you just graduated and would like to buy a $300,000 home however you do not have any down payment saved at this time. With the flex down mortgage you could, for example, borrow $5000 from your student line of credit, $5000 from a low rate credit card and $5000 from your family and you would have the 5% down needed.
The rest of the mortgage is at regular traditional lender interest rates.
Buying now versus waiting:
I am sometimes asked if now is a good time to buy or if it is better to wait a year in case, for example, house prices or interest rates fall.
When looking at house prices in Ottawa, the average sale price of a residential class property sold in January in the Ottawa area was $427,487. This was an increase of 8.8% over January of 2017.
Now if you wanted to wait one year to purchase, the house you are looking for could be 8.8% higher next year which based on the average house price in Canada in January would mean a price of over $36,600 more.
When looking at rates, if you go back one year with fixed rates, a five year fixed rate was 0.65% lower then it is today. Based on the average home price in Ottawa in January, with 5% down, on a 5 year fixed rate, the rate change would cost you over $12,400 more in interest over the term if that trend in rates continued.
The total difference of the price and interest over the year is approximately $49,000. In addition to changes in mortgage prices and rates, mortgage rules are frequently changing and one year ago there was not the stress test in place for conventional buyers, Ontario’s 16 new housing rules were not in effect and so on. We will have to see if this trend continues.
It is important to purchase when the timing is right for you, however waiting for prices and rates to drop may not be the best strategy in today’s market.
Closing costs to consider when purchasing a home:
When purchasing a home there are additional costs known as closing costs, which you need to consider.
Some example closing costs are:
-Land Transfer Tax
Here is a description of each:
Title Insurance: Title insurance protects homeowners against any issue that might arise on their home’s title, including defects and fraud. This will cost you around $150 and is a one-time fee. Your lawyer or notary assists you with obtaining title insurance.
Fire Insurance: Your mortgage lender will require that you have fire insurance in place on your home when you take possession. The amount of coverage you are required to have is generally no less than the amount of your mortgage or the cost to replace the home. The cost of the policy will depend on the size of your property, any extras you include and the location of the home, as well as the insurance company.
Legal Fees: You are responsible for paying the legal fees associated with the purchase of your home. Your lawyer (or notary) fees will likely be in the range of $700 to $1000. You will also be charged fees for registering your title with the municipality. In total, you will have to pay anywhere from $1,000 to $1,300 in legal fees, after taxes.
Land Transfer Tax: Land Transfer Tax is a fee that the province charges. First-time homebuyers are eligible for a rebate of the land transfer tax of up to $4000.
Adjustments: Adjusted costs cover repaying the seller for their prepayment of any condo fees or property taxes on your behalf. If you take possession of your home mid-month, the seller will have already paid these costs for the entire month. You will need to reimburse the seller for these costs.