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Downpayment Do's and Don'ts

Updated: Jun 15, 2023

For first-time homebuyers, one of the biggest hurdles is saving up enough money for the downpayment to buy their first home. We’ve seen the Reels and TikToks (we’re cool like that).

Our supposed ‘cool factor’ aside, these are our essential dos and don'ts of downpayments for your first home.

What is a Downpayment on a House?

So we’re all on the same page, a downpayment on a house is an upfront payment that you make when purchasing a home or other property. It's a portion of the total purchase price of the property and is usually expressed as a percentage. In most cases, a downpayment is required to secure a mortgage and finalize the purchase of a property.

The amount of the downpayment on a house required can vary depending on several factors, including the value of the property, the type of mortgage, and the lender's policies.

Typically, the more significant the downpayment, the better the terms of the mortgage, including lower interest rates and monthly payments. In general, a downpayment demonstrates your financial commitment to the purchase.

Downpayment Do’s

Here are some of the “do’s” of downpayments:

  • Start Saving for Downpayment Early: One of the best habits to adopt is to start saving for downpayment as early as possible. This will give you more time to accumulate the necessary funds and reduce the financial ask when the time comes to make the purchase.

  • Be Realistic About Your Budget: It's crucial to have a clear understanding of your budget when planning for a downpayment. Be realistic about what you can afford and avoid taking on too much debt. Consider your income, expenses, and long-term financial goals when setting your budget.

  • Research Your Options: When it comes to downpayments, there are several options available to save. Research the various mortgage programs, downpayment assistance programs, and government grants that may be available to you. Consider all the options and select the one or a combination that best suits your financial situation.

Downpayment Don’ts

First and foremost, don't use your emergency fund for your downpayment. You might be eager to buy that house, but don't forget that emergencies happen, and you'll need that money. Your future self will thank you.

Secondly, don't put your downpayment on credit cards. Unless you want to be drowning in debt, resist the urge to rack up those reward points. The interest rates on credit cards can be sky-high, and you don't want to be paying for that downpayment for the next 20 years.

Don't forget to stay within your budget. It can be tempting to stretch your finances to buy that dream home, but it's not worth the stress and anxiety that come with a budget that's stretched too thin. Remember, owning a home should be a joy, not a burden.

Finally, don't forget to get professional advice. Buying a home is a major financial decision, and it's always good to get a second opinion. Consult with a financial advisor or mortgage broker to ensure that you're making informed decisions and getting the best possible deal.

Can I Borrow a Downpayment for a Mortgage?

While it is possible to borrow funds for a downpayment, it's not always advisable. Most lenders require borrowers to have a certain amount of their own money invested in the property as a downpayment.

If you do borrow money for your downpayment, the lender will consider that as additional debt, which could impact your ability to qualify for a mortgage or result in higher interest rates.

Additionally, taking on additional debt can affect your debt-to-income ratio and may hinder your ability to secure other loans in the future.

How to Use Your RRSP Towards Downpayment for Mortgage

In Canada, the Home Buyers' Plan (HBP) is meant for first-time homebuyers to use their Registered Retirement Savings Plan (RRSP) towards a downpayment on a mortgage. The HBP allows homebuyers to withdraw up to $35,000 from their RRSP to purchase a home without paying taxes on the withdrawal.

The withdrawal needs to be made at least 30 days before you take possession of the property. Once the funds are withdrawn, they must be repaid within 15 years. You'll need to make annual repayments to your RRSP, and failure to do so will result in the amount being added to your taxable income.

You can also look at taking out on RRSP loan, utilizing the new First Home Savings Account (FHSA), the First-Time Home Buyer Incentive, and more.

It All Comes ‘Down’ To…

Come on. That was pretty punny.

Planning for your downpayment should start sooner rather than later. We only mentioned a few strategies here, but there are countless other ways to save for your downpayment.

When you work with a mortgage broker, they are going to be able to help with your unique downpayment strategy and share the advice to make it happen. Because the one thing Tiktok got wrong? Buying a home is possible with the right advice.


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