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First Time Homebuyers in Canada Have Down Payment Financing Options


First time homebuyers, many of them millennials, are entering the market during a time when housing prices are high, which can be a barrier. However, interest rates remain low, which works in their favour. Although the process of financing the purchase of a home can appear complex, it’s important to know that there are many resources available to help you get the funding you need.


Getting Started


First, check your credit rating. If it is less than stellar, work on improving it before embarking on the process of getting a mortgage. Sometimes credit histories are downgraded in error, other times people have made mistakes that have negatively impacted their credit ratings. Do whatever you need to do to make sure that your (and your spouse’s, if applicable) credit rating is as high as possible. 900 is the highest rating, but any score under about 700 means that you may have trouble obtaining a standard loan.


Before visiting your financial institution, have a look at some of the online resources available to you. A government of Ontario site, for example, has a section dedicated to "What You Should Know Before Buying a Home.” The Canada Mortgage and Housing Corporation website has several sections dedicated to homebuying, including a clear guide titled "Homebuying Step by Step” that includes interactive tools that help you to calculate your family budget. Doing a thorough self-analysis helps you to be able to ask and answer questions when you’re talking to a lender.


Talking to Lenders


Visit your own bank or credit union first. The advisors there will be the most familiar with your whole financial picture, and they may already know you, so they are a natural first stop. Tell the advisor that you’re in the market for a pre-approved mortgage. This type of mortgage calculates the amount of money you can be expected to receive once you submit the paperwork, and has several advantages. The amount on it will give you the upper limit of your price range, and that will inform your home search. Perhaps you intend to live in downtown Toronto, for example. The amount on your pre-approved mortgage may tell you that you can afford a mid-size condo in that area. However, that very same amount might buy you a detached home in downtown Brampton. A pre-approved mortgage gives you the parameters of your search.


In Canada, most often a down payment of 5% - 20% is required. However, it is sometimes possible for first time buyers to purchase a home with a small, or even no down payment. Talking to a financial advisor or a mortgage broker can help you to ascertain if you qualify for this opportunity.


Feel free to approach several different lending agencies. There are various products available to those who can take advantage of them.


Finally, in the fall of 2016, the Canadian government made some changes to mortgage regulations, including a so-called "Stress Test” that helps to ensure that, should interest rates rise, your financial situation will not be stretched too thin. Read this Globe and Mail article to see how these changes might affect you.


After speaking to the lending institutions and once you have financing in place, team up with a real estate broker, and begin the journey to find your dream home!