Buying a house can be a very exciting and important time in your life; therefore to ensure the process is as smooth as possible it is critical to analyze your situation before making a down payment towards it. The down payment is a chunk of cash you pay upfront when buying a home – which shows lenders that you are capable of saving money and are very serious about the purchase. Many times, buyers make emotional decisions and end up in situations where they are unable to manage their mortgage payments. To avoid common mistakes, here are some tips on becoming an intelligent buyer.
- Deal without thinking
The amount of down-payment should be according to financial constraints of the buyer. It should not exhaust them and they should be able to pay it comfortably without compromising their regular important expenses. If you have a decent amount of money saved up and a low income, it is more sensible to put down a large amount towards your home upfront as it will reduce your monthly cost. On the contrary, if you earn a good income on a monthly basis but have little saved up, it would make sense to get a mortgage with a smaller down payment.
- Paying with unseasoned funds
Some homeowners use money for a down payment that was gifted to them from immediate family. Lenders want to ensure that they can protect you from a potential default therefore they require a detailed trail of where your assets are coming from. This is also why lenders check your credit score to see whether you’re able to manage your mortgage, provided they give it to you.
In order to use gifted funds towards a down payment, a gift letter has to be made showing that the money was donated. Seasoned funds refer to having a certain amount of money in your bank account for a certain amount of time, typically 90 days. This shows lenders that transactions in your account aren’t sporadic and are available.
- Ignoring RRSP funds
If this is your first home, you can use up to $25,000 from your Registered Retirement Savings Plan (RRSP). All you need to do is redeem the funds and have it deposited into your bank account. You will just need to provide proof that the account the funds are deposited to belongs to you.
- Using the main bank account
If you have the same bank account for paying utility bills, it may seem you are spending your down-payment amount. It is better to open another account that is specifically for your down-payment deposits. Discussing your situation with an expert mortgage specialist will help guide you to make the right decision, ensuring your home buying experience is smooth and hassle-free. Managing all the household payments that your home requires can be a bit stressful sometimes; that’s why having multiple bank accounts can help to simplify your finances. An account dedicated to building your down-payment is the best option to help maintain clarity with your finances.
Do you have any questions regarding down payments? Sbryan mortgage solution in Durham Region has been helping clients in Pickering, Ajax and the rest of the Durham area. Call or email today!