If you’re like most people, putting together a 20 percent down payment on the purchase price of a house or condo can often be difficult.
But the good news is you can still get a mortgage. The not-so-good news is there may be some extra fees involved.
If you’re unable to come up with 20 percent of the purchase price, you may still qualify for a high-ratio insured mortgage insured by the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, or AIG.
High-Ratio Insured Mortgage
Many first time home buyers find it difficult to come up the full 20 percent down payment required to get an un-insured mortgage.
Considering that would be $40,000 for a $200,000 – home you can see why.
If you don’t have that much saved, you can pay a bit more and get an insured mortgage with the assistance of one of the three organizations mentioned above.
You follow the same steps and processes that you would if you were getting a regular mortgage but you also get your mortgage insured by either CMHC, Genworth Financial Canada or AIG.
This provides protection for the lender and still allows you to buy your house.
Depending on how much you have saved, the extra fees can be up to 3.15 percent of the total mortgage. This fee is incorporated into your mortgage and you pay it off over a number of years.
No Down Payment
If you are a first time home buyer, you may qualify for a high-ratio insured mortgage that covers 95 percent of the purchase price and your bank will give you the remaining 5 percent down payment.
In order to qualify for this type of loan, you have to be able to show that you can afford your mortgage payments and any other costs associated with owning a home or condo such as property taxes, condo fees, and utilities.
CMHC and Genworth Financial Canada will not allow you to spend more than 32 percent of your gross income on home or condo related costs.
It’s a good rule of thumb in general not to spend more than 30 percent of your gross income on home related costs.
In addition, if you have credit card debt or any other debts, these organizations won’t let you spend more than 40 percent of your total household income on your debt and your housing costs combined.
While the “no down payment” option allows many first time home buyers to afford a property that would otherwise be unattainable, there may be risks involved depending on your situation.
The Truth About the “No Money Down” Mortgage
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