When All You Need Is The Downpayment
03 Nov 2016

When All You Need Is The Downpayment

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When all you need is the downpayment

 

You’ve managed to build and keep your credit rating in good standing and you have a great job (or jobs)

with decent income. Now all you need is the downpayment so that you can buy your first home. For

many Canadians,  this is the hardest part of the home buying experience, but don’t fret, there are many

ways to achieve a downpayment for buying a home.

Having a downpayment of some sort is an absolute necessity these days. With that being said, there are

some unique ways to get a downpayment for a house beyond simply putting money into your savings

account. Most homes will require at least a 5% downpayment in addition to closing costs. Let’s look at

a few ways to acquire the needed funds:

 

Savings

This is the traditional way of accumulating a downpayment. You open a savings account or TFSA, and

every week or two weeks (often your job’s payday) you put a small amount of money into this savings

account. Eventually, you will accumulate a fund of money that you can eventually use to buy your first

home.

 

Sell Something of Value

Perhaps you worked really hard to pay off your car loan in only 2-3 years and your car is still worth a

decent amount of money. Under this scenario you could sell this asset and have the required funds you

need to make that downpayment.

 

RRSP Home Buyers Plan

Using the Government of Canada’s Home Buyer Plan (HBP) allows you to withdraw up to $25,000 per

person in a calendar year from your RRSP. The best part? This program allows you to withdraw this

money TAX-FREE when buying a qualifying home. For more info, click here.

 

Gifted Downpayment

More and more young Canadians are obtaining at least some of their downpayment from the “Bank of

Mom and Dad” or from other family members. This is where you have a family member give you the

downpayment required to buy your home. Statistics say that over the next few years, Canada will see

one of the highest transfers of wealth to their children as the baby boomer’s prepare for retirement and

estate planning.

 

Borrowed Downpayment

This program is not widely used by all banks, but some still allow it and it’s a pretty useful program

under the right circumstances. Let’s say you have a good job, good credit and owe very little in the way

of debt. Using the Borrowed Downpayment program available with some lenders allows you to use

either a Line of Credit, credit card, or bank loan to provide the necessary downpayment required to get

into a home. This program is essentially allowing you to move into a new home by putting 0% down.

RRSP Loan and Repayment Strategy

This program is similar to the Borrowed Downpayment program but with a twist. This is a strategy that

involves taking out an RRSP loan for let’s say, $15,000 and buying an RRSP for the equal amount. After

the funds have been in your RRSP for at least 90 days, you can withdrawal them under the HBP

(previously discussed above) to buy your first home. When income tax time comes, you will receive a

refund because you put such a large amount into your RRSP, you can now use that refund to paydown

your RRSP loan, thereby reducing your balance owing on the RRSP loan. This strategy should only be

used if you have discussed it with your accountant first, to ensure that this strategy is right for you.

 

Affordable Housing Grant Program

Some counties offer downpayment assistance under the Investment in Affordable Housing (IAH)

Program whereby qualified applicants can apply to receive up to 5%-10%  downpayment assistance in the

form of a forgivable loan. Each county has a separate set of requirements including: household income

level, purchase price maximums, and length of time you must own the home before the downpayment

is completely forgiven. Researching Housing Grant programs in your county will help you determine if

you qualify and if the county has funds available under this program, as each year, most counties

exhaust their funds or have waiting lists for this program.

Once you have a plan for obtaining your downpayment, it is a good idea to look at getting a

mortgage pre-approval so that you know what price range you qualify for and to hold rates for you. Being pre-

approved does not guarantee an approval since the house you buy must also be approved, but its gets

you much closer to knowing what you can be shopping for so that you can house hunt with confidence.

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