How To Come Up With Your Down Payment
I recently read an article that claims 67% of first-time homebuyers are worried about not getting their dream home due to the lack of a down payment. I want to highlight the different options homebuyers have when it comes to their down payment in an attempt to ease that worry.
Personal Savings: Using your personal savings is a common way to fund a down payment. You can accumulate funds over time in a savings account specifically dedicated to your home purchase.
Gifted Funds: It is possible to receive a down payment as a gift from a family member. However, some lenders may require a gift letter from the donor stating that the funds do not need to be repaid.
Loans from a financial institution (e.g., Line of Credit or Personal Loan): If you have a line of credit or a personal loan available, you may be able to use it to cover your down payment. However, it's important to consider the interest rates and repayment terms associated with using a line of credit or personal loan, as it may increase your monthly expenses and affect your overall financial situation.
RRSP Withdrawal / Home Buyers Plan: The Home Buyers' Plan allows first-time homebuyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) tax-free. This money can be used as a down payment, and you have up to 15 years to repay the amount withdrawn from your RRSP. You can read more about RRSP's on my previous blog.
First Home Savings Account: The Fist Home Savings Account allows prospective first-time homebuyers save for their first home, tax-free up to $40,000. The FHSA is an excellent combination of an RRSP and a TSFA, and is available as of April 1, 2023. Take a look at some of the details of the FHSA here.
Home Sales Proceeds: This involves selling your current property and using the proceeds from the sale to fund the down payment on your next home. Check out how some simple renovations can improve your selling price here.
When it comes to your down payment, I want to stress the importance of knowing exactly where your funds are going to come from. This is because you will need to have a paper trail of the money for at least 90 days. This means the money has to be in your bank account for 90 days before it can be considered eligible to use towards your down payment. It’s key to know that any form of “mattress money” can’t be accepted due to Canada's AML/ATF Regime.
What is mattress money? Mattress money is defined as any money that you have stashed away that is not in the bank. The best thing you can do if you have mattress money that you want to count towards your down payment is to deposit it in the bank ASAP.
It's worth noting that eligibility criteria, application processes, and availability of these options may vary, so it's recommended to research specific programs or consult with a mortgage professional like myself to explore all the down payment options available to you in Ontario. Book a meeting with me today so we can get you on the best path for you!
