Purchases/First Time Home Buyer Mortgage/Investors
Purchasing a home can be confusing and terrifying but it can also be one of the greatest things you could ever do.
Having a person who knows the market and can answer your questions clearly and give you direction is important. When buying a first home or 10th, knowledge is the key to getting it done right and on time because the mortgage market is ever changing you need somebody who is on top of the changes.
When it comes to purchasing a home, whether you are doing it for the first time or have been through the process before here are some things to consider and be aware of when you buy.
The minimum down payment in Canada depends on the purchase price of the home: If the purchase price is less than $500,000, the minimum down payment is 5%. If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
In Canada when purchasing a home you must also qualify at the Bank Of Canada's posted rate which today is 5.34% or 2% over your contract rate (this stress test rate can change, so be sure to check what stress test rate you will qualify at). The stress test is the same for purchases with 5% down payment and over 20%, all loans must qualify at this rate. The good news is your actual interest rate or contract rate would be lower than this stress test rate. Another cost to consider is Property Transfer Tax.
Home buyers in BC pay a provincial Property Transfer Tax (PTT) when they buy a home. The tax is charged at a rate of 1% on the first $200,000 of the purchase price and 2% on the remainder up to and including $2 million. The PTT is 3% on amounts greater than $2 million.
There is a PTT exemption for newly built homes with a value of up to $750,000. This includes a house constructed on vacant land, a new apartment or condominium building, a manufactured home on vacant land and other new built homes.
Some steps to take when looking to purchase a new home:
- STEP 1 – Build a Budget and gather your income documents
- STEP 2 – Investigate Mortgage Options.
- STEP 3 – Choose a Realtor.
- STEP 4 – Get a Lawyer.
- STEP 5 – House Hunting.
- STEP 6 – Make the Offer.
- STEP 7 – Home Inspection or New Home Warranty.
- STEP 8 – Finalizing the Deal.
Check list of documents needed when people are purchasing/ refinancing a home
To process your mortgage application, we will require the following support documents as soon as possible.
CONFIRMATION OF EMPLOYMENT
Job letter, on employer’s letterhead showing; position, length of employment, amount of gross income and future prospects.
CONFIRMATION OF INCOME
- 2 years T-4 slips (or page of Tax Returns that shows income) and one current pay stub
- Copy of most recent Notice of Assessment confirming any/no tax balances owing
CONFIRMATION OF DOWN PAYMENT
- Photocopy of monthly statement for the bank account the down payment is coming from, showing applicant’s name(s) and account number. Statements should be for recent three months, showing orderly accumulation of funds, if internet printouts are provided, your name and account number must be on the document to confirm ownership.
or - Recent copy of R.R.S.P. statements
or - Gift letter indicating down payment is a gift and non-repayable
NOTE: Some lenders require confirmation that the gifted funds are in the mortgage borrowers bank account prior to issuing the final approval.
Copy of Contract of Purchase and Sale for present home
and - Copy of mortgage statement showing total payout balance as of new completion date
If Business for Self
- Three year income statements & balance sheets
- Three year Revenue
- Three year tax filings ( income and expense pages only - T1 general)
Immediately upon acceptance of your offer we will need
- Copy of Contract of Purchase and
- If MLS listed - copy of MLS Listing for your new home
- If a detached home - copy of the Land Survey Certificate for new home (if applicable)
- If condo or townhouse – Lender may request Strata Document
- If low Loan to Value ratio - copy of Property Tax Assessment Notice for new home
- Selection of Legal representative (sometimes from lender approved list)
Down payments can be confusing and knowing what the minimum down payment will be for your purchase could be valuable information as you hunt for a new or first home.
So, what is the minimum amount you are required to put down?
Below are three different purchase price categories. Each one has their own minimum down payment requirements and we have included some important notes to also consider at those prices.
| $1-$500,000 | Minimum 5% Down Payment |
- The lowest amount you need as a cash down payment for a purchase up to $500,000 is only 5% of the purchase price.
- For a $300,000 home, this would be $15,000.
| $500,001 – $999,999 | Blended Down Payment |
- The minimum down payment if your purchase price falls in this category is 5% on the first $500,000 and 10% on the remainder up to a million dollars.
- For a $650,000 purchase price, you would be required to put down $25,000 (5% on amount up to $500,000) and $15,000 (10% of the amount above $500,000 [$150,000 in this case]) for a total minimum down payment of $40,000. This would be a 6.15% down payment.
| $1,000,000 + | Sliding Scale |
- 20% requirement on entire amount up to $1,250,000 and 50% down payment on amount over $1,250,000 subject to a 75% loan to value.
- A $1,100,000 purchase price would be a minimum down payment of $220,000 (20%).
- $1,350,000 purchase price would require $250,000 (20% on $1,250,000) plus an additional $50,000 (50% of amount above $1,250,000 [$100,000 in this case]).
- Some lenders may make different exceptions depending on the strength of an application but, for the most part, the sliding scale information above is quite accurate.
There you have it! The three most common sized purchase prices and their required minimum down payment. Please keep in mind that almost all lenders will require you to have an additional 1.5% of the property value available in cash to cover all closing costs which may include, for example, lawyer fees, property transfer tax, and insurance.