Is there such a thing as the best way for home buyers save a down payment? Well, in my opinion, yes there is. But what is it?
Most home buyers believe that a minimum down payment of 5% is the normal requirement needed for the purchase of most properties. Although this may be the case for the majority of home purchases, it is not always the case. One the one end of the spectrum, all investment properties in Canada require a minimum 20% down payment(As of late 2010). There are also similar guidelines should you want to purchase a recreation property.
At the other end of the spectrum are options that would require much less than 5% in hand for a down payment. Here are a few of those options:
- RRSP Use for down payment - You may use any RRSP amounts towards your down payment without being penalized with tax for withdrawing, as long as you repay the RRSP amount within 15 years. The amount must also have been in an RRSP for a minimum for 90 days - which deters people from putting it in and then taking it out right away just to get some tax savings.
- 'Zero' Down Payment - There are also certain lenders out there who offer zero down payment on the purchase of a property. This actually is technically incorrect, as what you are actually doing is borrowing the down payment for a home purchase.
- Gifted Down Payment - This is where a relative, loved one, or friend 'gifts' you the amount for the down payment. The person who does gift you the down payment must sign a letter to the lender promising that the gift is not repayable and does not create a debt between the home buyer and the gifter.
There are also guidelines for the down payment as well that go beyond the actual amount provided. Some of these guidelines include that you must have the amount in your bank account for a minimum of 90 days and that you have a approximately 1.5% of the home purchase price in addition to the down payment to pay legal and closing costs.
It is important to note that the amounts given In these scenarios are minimums only. You would often be better served to save up more of a down payment in order to decrease your monthly mortgage payments as well as mortgage default insurance (usually provided by CMHC or GE Finance). This is especially if you are currently in a living situation where you have little to no rent or mortgage payments to be made.
There are many different ways that a home owner can come up with the down payment for a home purchase. The key is to find out all of the options available, because the best way for home buyers to save a down payment for a home property is to make an informed decision on the way that works the best for them!