Deal or No Deal: How $1 Could Make All the Difference
One dollar isn’t that much money in the grand scheme of things, but when it comes to buying a house it can make all the difference.
Back in February of 2016, Canadian mortgage rules tightened concerning mortgages over $500,000. The Canada Mortgage and Housing Corporation (CMHC) announced changes to the required down payments.
This is how much down payment is required per house purchase price:
Purchase price of home: $500,000 or less
Minimum down payment required: 5% of the purchase price
Purchase price of home: $500,000 to $999,000
Minimum down payment required:
- 5% of the first $500,000 of the purchase price
- 10% for the portion of the purchase price above $500,000
Purchase price of home: $1 million or more
Minimum down payment required: 20% of the purchase price
Those who are self-employed or who have poor credit history may be required to provide a larger down payment. With new mortgage stress test rules, it may be beneficial for a client to put down a more significant down payment to pass the stress test.
This might be a miniscule difference when it is on a smaller scale, however, it can quickly increase.
Take for instance a client who wants to purchase a $400,000 house vs. a $600,000 house ($20,000 minimum down payment vs. $35,000 minimum down payment). Or a client who wants to purchase a $900,000 house vs. a $1.1 million house ($65,000 vs. $220,000 minimum down payment).
It’s possible that real estate sales professionals might not even feel this impact because people are getting declined when looking for mortgage pre-approvals, therefore they never engage a real estate agent.
How can you help a client who wants to buy, and is on the line?
- Independently check the values of interest properties. Make sure the property values are in line with the price being advertised.
- Look for pockets where the client could get into the market – different neighbourhoods, dwelling types, etc. One neighbourhood might be out of their range, but they could get the same-sized house a little further away.
- Review different scenarios with the client so they set realistic expectations. For instance, while the $1.1 million house may have different features from the $900,000 house, the down payment would cost at least $155,000 more. Similarly, the $400,000 may not have all the features as the $600,000 house, the down payment would be at least $15,000 less.
GeoWarehouse has the tools that make you the property expert. Help your clients find the properties and neighbourhoods where they can make the minimum down payments with ease.
Learn more about our property reports and neighbourhood search features at www.geowarehouse.ca.