Should I buy a home now, or wait and save more money?
A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step. Find out more.
Sometimes people can’t wait to buy a home because of family or personal reasons. For example, they may have a new baby coming and need more room. Or, they are worried about house prices going up faster than they can save.
What if you don’t have the down payment you need for the house of your dreams? Should you wait and save more, or find another way to borrow the money you need? You won’t be able to get a standard mortgage but you could get another type of loan.
Should I save more or borrow more?
Here is a summary of the reasons to buy now, or wait.
Should you: Wait and build up a large down payment?
You will pay less interest. You can avoid paying for mortgage insurance. You reduce the risk of not being able to pay back the loan if the value of your home drops and you have to sell.
You have to wait to own a home and you will pay more rent. You could have put that rent towards paying a mortgage, and owning more of your home faster. You have to be disciplined or you could spend your savings on other things. In some areas, house prices may rise faster than you can save the down payment.
Buy earlier with some other type of loan?
• You can stop paying rent sooner and get into a home faster.
• You have the chance to own more of your home sooner.
• You don’t risk house prices rising more than you can afford.
• You will pay more interest.
• You will have more worries if you take on more debt than you can handle.
• If you have to sell and the value of your home drops, you may not be able to pay back the loan.
Whatever your situation, think carefully about your options before you rush into buying a new home. If you decide to buy now, you may be able to borrow more by getting either:
- A high-ratio mortgage, or
- A second mortgage.
Learn more now: How can I borrow more? Contact me & protect your rights.
Remember: You will likely pay for your home over many years
If your down payment is less than 25%, a regular mortgage won’t cover your purchase. Your options include:
1. A high-ratio mortgage
- Lets you borrow up to 95% of the house price.
- You’ll have to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) to cover this loan. Why? Since you’ve borrowed so much, the bank believes there’s a higher risk you might not pay it back.
- You can pay for your insurance in a single lump sum when you buy your new home. Or, you can add it to your mortgage and include it in your monthly payments. If you choose monthly payments, you will pay interest on what you owe. Over the years, that can really add up.
Example: If you put 20% down on a $200,000 home, you would pay $1,600 (1%) to insure your mortgage with CMHC,mostly banks-lender absorbs it. If you put down 10% on the same home, you would have to pay $3,600 (2%). If your down payment is just 5%, you would pay $5,225 (2.75%) for CMHC insurance.
2. Second mortgage
- First you borrow as much as you can as a regular mortgage. This is also called a first mortgage.
- You get a second mortgage for the rest. Often you will get this loan from a different lender who is willing to take on the extra risk. After all, the lender may not get their money back, if you have to sell your home. That’s because the bank that holds your first mortgage is first in line. Also, you will usually pay a higher rate of interest. Higher interest makes it worth the risk for the lender.
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(The comments contained on this site are for information purposes only and do not constitute legal advice.)
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