Downpayment scenarios

[BMS]

So the girl and I are looking to buy a house, possibly as soon as next year. First question is, we don't have much for a downpayment right now, but are able to save anywhere from 10-20K by next year. That being said another option is using my RRSP for the downpayment, but I was told not to go this route incase I ever need the money down the road. We also have 10K that we can use on downpayment or whatever that we won in a draw.

So my question is this: Is it worth buying a home with the minimum 5% down or thereabouts or should we hold out until we get the 20% to avoid the CMHC fees. These fees aren't as high as I thought but is it really a big deal to pay the CMHC fees?

Thanks in advance.

[Sasuke_Kensai]

I'm not a mortgage broker, the following is based on my own consumer research.

IMHO - either go 5% or 20%. As you get closer to 20% the CMHC fees go down as well. Whatever CMHC fee is, it gets added onto the mortgage. I think the CMHC fee at maximum was something like 2.15% of the house value, at $400K this should be $8600. Since this gets split over the mortgage life, not a big deal.

Of course with 20% down you're also avoiding a lot of interest costs but then you don't have a savings buffer.

Something to note, I think if you can put 20% down and don't get CMHC insurance, you can actually still have 35 or 40 year mortgages. The new rules were for high LTV mortgages (less than 20% down).

Another thing - if you put 5% down and the market goes down, I think in order to renew your mortgage the maximum you can reborrow is 85% of the house's current value? So even if you could make the payments you may not be able to legally renew your mortgage in 5 years. Can't explain this one well and it might not be totally accurate.

[Euro838]

From the numbers above that you posted, you may qualify for the following program.

http://attainablehomescalgary.ca/our-home

I have no experience with this program but seems like it's a worthwhile option to check into.

The program looks like it's for apartment condos but I guess if you can only save $10-20K a year, do you really want to buy a $400K house?

[BMS]

The 10-20K is not per year, thats just until early next year. We are hoping to buy before July next year as thats when that extra 10K that we won will expire.

[Euro838]

Well, I am always against CMHC fees not because of the fees alone but it also means you have a decent downpayment for your house. If you have to buy before next July to cash in on the $10K that you won, but you have to pay $10K in CMHC, then I don't see how are you ahead from a financial point of view.

Obviously there would be other factors that may be beneficial i.e. not renting anymore, etc.

I am not sure which real estate point of view you believe in i.e prices going up or down so you'd have to make a judgement on that. You are probably better off figuring out from a mortgage interest rate perspective that you can qualify on. If you are not able to get a good rate i.e. 4%+ then you may want to try and borrow less. If you can get a good rate i.e. <2.5%, then it may not matter as much. Anyways, hope this helps.

[Mixalot27]

Some good info on the RRSP Home Buyers Plan:

http://www.albertamortgages.net/rrsp-info.php

[barmanjay]

won 10k in a draw,.. that expires? Interesting.

You want to be in a home by july of next year...
will have approx 20k as a down.

@20% down you wont be able to buy anything nice,.. if anything at all (1 bedroom condo in forest lawn?)

@5% down (pending you current credit report and gross income) you have up to 400k for a home.

Maybe being modest might be the better way to go? 7-10% down?

buying a small detached home in some older - less desired areas will run you about 225-275k

Maybe you need to figure out what kind of home you can do with as a first home?

What kind of monthly payments are the most comfortable for you without feeling like you are reaching?

You need to figure all these things out

[muse017]

I am in the same boat as you are but I decided to save up for more downpayment. I do not like the idea of paying CMHC fee when you can avoid it. I am currently saving almost all of my disposable income(approx 60% of my income) and things looking promising. By the end of this year, I will have enough for 20% downpayment and some extra for the upgrade and so on.
I would suggest to tighten up your spending and save more till you actually get your mortgage for your place.