Down Payments

The money that you pay up front for a house is the down payment. These payments typically range from 5 to 25% of the total value of the home. The obvious source of money for your down payment is either your savings or the proceeds from the sale of a home you already own.

While it is possible to buy a home with as little as 5% down, the amount of your down payment will determine whether you will have a conventional mortgage or an insured, high-ratio mortgage.

What's the difference?

• Conventional mortgage: Your down payment is at least 25% of the purchase price.
• High-ratio mortgage: Your down payment is less than 25% of the purchase price and must be insured by CMHC or GEMI. An insurance premium will apply

Closing Costs

High Ratio Mortgage application fee: Paid to the mortgage insurer to process your application if you're applying for a high-ratio mortgage (less than 25% down payment).

Mortgage default insurance: High-ratio mortgages (those with less than 25% down payment) require insurance against default. The cost is usually added to the mortgage, and ranges from 1.00% to 3.25% depending on the amount of your down payment. There is an additional 0.25% premium for variable rate mortgages.

Appraisal fee: The cost for a professional appraiser's opinion of the value of the property. Your mortgage lender will require an appraisal to determine whether the selling price is reasonable for that market.

Home inspection fee: This covers the cost of a professional inspection of your home.

Legal costs: Legal costs include fees for the professional services provided by your lawyer or notary, costs involved in conducting a title search, drafting the title deed and preparing the mortgage, as well as registration fees and other disbursements.

Prepaid taxes, utility bills and other charges: The seller may have prepaid some bills before the closing date, which you will have to cover. All taxes, utility bills, and other charges incurred after the closing date become your responsibility.

Provincial tax: Often referred to as the Land Transfer Tax, this tax is applicable in most provinces and is usually a percentage of the purchase price. Some provinces may also charge tax on new construction.

GST: You pay GST on the purchase price of a newly constructed home.

Fire insurance: Mortgage lenders want you to protect your home – and their mortgage collateral – against fire and weather-related damage so it's necessary to purchase fire insurance.

Moving expenses: Costs will vary, depending on whether you do it yourself, rent a truck, or hire professional movers.

Additional expenses: These could include utility hook-up charges, any repairs you need to make after buying your home, the cost of appliances and window and floor coverings.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

• Housing Expense Ratio
  Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.

• Debt-to-Income Ratio
  You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.