Do You Need to Put 20% Down to Buy a Home?

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You’ve likely heard it’s a requirement to put 20% of the purchase price down when you’re ready to buy a home. Is that really the whole truth, though?
 
In short – no, not entirely. There’s a lot more you need to know about down payments and getting into the housing market.
 

The “Stress Test”

Starting back in January 2018, the BC government introduced a new program requiring almost every buyer to go through a "stress test" when applying for a mortgage. This test examines your finances and determines what kind of borrower you'll be.
 
Before January 2018, this test was only given to people deemed high-risk borrowers or those with a down payment of less than 20%. And although most potential buyers have to go through the test now, if you have less than 20% of your down payment, chances are you won’t fare well.
 
So, what can you do to get into the housing market if you don’t have a 20% down payment? It's a common question to ask these days, so we’ve come up with some options for you.
 

Look at Lower Priced Properties

It's common sense, right? You may be looking at $800k homes in the MLS listings but may not have 20% of that saved. But if you drop down to homes in the $600k range, you might.
 
Keep your options open. Check out an alternative, less expensive neighbourhood, or consider a smaller home or condominium. By setting your sights lower, you could be well on your way to becoming a homeowner.
 

Get a High-Rate Mortgage

If you're really serious about getting into the housing market but don’t have all the money for a down payment, you could apply for a high-rate mortgage.
 
This mortgage is precisely what it says, however — high rate. So be prepared to pay more interest and have other potential restrictions and fees.
 

Talk to Your Financial Institution About a Second Mortgage

You may be able to apply for a second mortgage to cover the amount the first mortgage doesn’t. To do this, you’ll likely need a good relationship with your financial institution — and a good credit rating — to take advantage of this option.
 
This is another risky move, though, because you’ll be in a lot of debt. And if you don’t pass the stress test, you may not even be approved for a first mortgage, let alone a second.
 

Continue Saving for Your Down Payment

We know you’re very eager to become a homeowner, but it may be worth waiting to save more money. The more of a down payment you have, the better you’ll do during your stress test. And you’ll have a better chance of receiving a mortgage at a good rate.
 

Talk to The Garman Group

With the high prices of real estate in Victoria, more people are struggling to come up with the money for their down payment. At the Garman Group, we can help you find a property that fits your budget or answer any other questions you have about getting into the housing market. Contact us today!