I recently tried using a mortgage calculator from CIBC to determine how much I would need to make in order to purchase a property in Coquitlam, BC, which is a suburb of Vancouver. The property is a two-story townhouse with a basement, three bedrooms, and two bathrooms, and was built in 1993. It has a list price of $799,879 and a condo fee of $324. The taxes for the year 2017 are $2,841. I attempted to calculate how much I would need to make in order to afford this property, and found that even with a down payment of $100,000, I would still be unable to afford it. According to the CIBC affordability calculator, the average dual family income in Vancouver is $98,766, but even with this income, I would only be able to borrow a maximum of $399,437. When I plugged this information into the mortgage calculator, along with estimates for heating costs, property taxes, and condo fees, the resulting monthly payment was $3,736. When I factored in other expenses such as car loans, credit card debt, and other debts, it became clear that this property was out of my price range.
When buying your first home, it is important to consider how much you can afford to put down as a down payment. The size of your down payment can affect the mortgage rate you qualify for, the type of mortgage you can get, and whether or not you will need to pay for private mortgage insurance (PMI).
First, let’s define a down payment. A down payment is a percentage of the home’s purchase price that you pay upfront, out of pocket, when you close on the home. The remainder of the purchase price is covered by your mortgage loan.
The size of your down payment will depend on several factors, including your personal financial situation, the type of mortgage you are seeking, and the requirements of the lender. Here are a few things to consider when determining how much to put down on your first home:
Your budget: It is important to determine how much you can afford to pay upfront for a down payment, as well as how much you can comfortably afford to pay each month for your mortgage. Be sure to consider all of your other expenses, such as utilities, insurance, and maintenance, when determining your budget.
The type of mortgage: Different types of mortgages have different down payment requirements. For example, conventional loans typically require a down payment of at least 3% of the home’s purchase price, while FHA loans require a down payment of at least 3.5%. VA loans, which are available to military members and their families, do not require a down payment at all.
Private mortgage insurance (PMI): If you do not put down at least 20% of the home’s purchase price, you may be required to pay for PMI. PMI is an insurance policy that protects the lender in case you default on your mortgage. It can be costly, so it is worth considering whether you want to pay for it or if you can afford to put down a larger down payment to avoid it.
Mortgage rates: The size of your down payment can affect the mortgage rate you qualify for. Lenders often offer lower mortgage rates to borrowers who make larger down payments because they are seen as a lower risk.
Home equity: The larger your down payment, the more equity you will have in your home. Equity is the difference between the home’s value and the amount of the mortgage. Having more equity in your home can be beneficial because it can give you more financial stability and potentially lower your mortgage payments.
It is worth noting that there are programs available that can help first-time homebuyers with the cost of a down payment, such as the FHA’s Homeowners Armed With Knowledge (HAWK) program and the VA’s Native American Direct Loan (NADL) program. Additionally, some states and local governments offer down payment assistance programs for first-time homebuyers.
In summary, the amount you should put down on your first home will depend on your budget, the type of mortgage you are seeking, and the requirements of the lender. It is important to carefully consider all of these factors and to consult with a financial professional to determine the best course of action for your unique situation.