“How much down payment do I need” is one of the most popular questions that potential home buyers ask often. This is an interesting question because the answer will depend on the context of the questions. For example, how much down payment you will need can be as little as 5% of the purchase price which is set by the regulators and insurance companies. However, you may actually need 10%, 20% or more to qualify based on your personal circumstances.
“How much down payment” you will need can also depend on your ability to afford the mortgage payments. Even if you can get qualified for a mortgage with a minimum of 5% down, you may not be able carry the mortgage depending on the size of the monthly mortgage payments. You may also have your own personal maximum affordability budget which may be lower than the maximum allowed by the banks. Therefore, how much down payment you need will require you to satisfy your personal budget and determine the maximum mortgage you can afford to carry. Even if you can afford the mortgage payments and qualify under the minimum down payment program, we always recommend that our clients save as much as they can over and above the 5% minimum and decide later on how much of their savings they would like to actually apply to the purchase. The worst case scenario would be that they would have more money in their savings if they decided not to increase the down payment after all.
As of January 2016, there were changes made to the minimum down payment requirements for homes that exceed the purchase price of $500,000. The minimum 5% still applies to purchase prices up to $500,000 and then turns to 10% for every dollar above this amount. For example, if you were looking to buy a home for $650,000, the first $500,000 would be at 5% plus the remaining $150000 would be at 10%. Therefore in this example, your minimum qualifying down payment amount would need to be:
($500,000 x 5%) + ($150,000x 10%)
=$25,000 + $15,000
Since not all potential home owners are the same and many have unique circumstances, they may not actually qualify for the minimum down payment program. Banks will look at the credit, employment and income information for every borrower to determine the risk associate with each client. If the purchaser cannot demonstrate low risk and showcase a strong application, the banks may come back with a request to increase the down payment to 10%, 15%, 20% or more depending on their reasons.
Once again, how much down payment you may need requires a look at your personal circumstances to really provide an accurate response. If you are interested to find out where you stand or have any other questions, please call us at 905.455.5005