Conventional mortgages are one of the most popular types of home loans available today. They are typically used by borrowers who have good credit and a steady income. But one of the most important factors in getting approved for a conventional mortgage is the downpayment, for that the understanding of conventional mortgages and downpayment requirements in Canada is very important.
Downpayments
A downpayment is the amount of money you need to put down in order to purchase a home. The size of the downpayment is determined by the lender, and it typically ranges from 5-20% of the purchase price of the home. The larger the downpayment, the less risk to the lender and the easier it is to get approved for the loan.
Downpayments in Conventional Mortgages
When it comes to conventional mortgages, the amount of the downpayment you need to make will depend on a few factors. These include your credit score, the size of the loan you are requesting, and the type of property you are purchasing.
Generally, if you have a higher credit score and are looking for a larger loan, you will need to make a larger downpayment.
For example, if you have a credit score of 700 or higher and are looking for a loan for $400,000, you may need to make a downpayment of at least 10%.
However, if you have a credit score of 700 or higher and are looking for a loan for $200,000, you may only need to make a downpayment of 5%.
Making a larger downpayment can make it easier to get approved for a conventional mortgage, but it is not always necessary. There are a few other ways to make the process easier. These include having a large amount of cash available or having a cosigner who is willing to back your loan.
No matter what type of mortgage you are looking for, it is important to understand the downpayment requirements and how they may affect your loan. With a conventional mortgage, the size of the downpayment is determined by the lender, and it generally ranges from 5-20% of the purchase price of the home. The larger the downpayment, the lower the risk to the lender, and the easier it is to get approved for the loan.
However, there are a few other factors to consider when it comes to conventional mortgages and downpayments in Canada.
Factors to Consider on Conventional Mortgages and Downpayments
The Difference Between High-Ratio Mortgage and Conventional Mortgage
First, it’s important to understand the difference between a high-ratio mortgage and a conventional mortgage. A high-ratio mortgage is one where the downpayment is less than 20% of the purchase price of the home. In this case, the lender will require mortgage default insurance, which is also known as CMHC insurance. This insurance protects the lender in the event that the borrower defaults on their mortgage.
On the other hand, a conventional mortgage is one where the downpayment is 20% or more of the purchase price of the home. In this case, the borrower is not required to purchase mortgage default insurance. This means that the lender is taking on more risk, and as a result, the borrower may be required to make a larger downpayment in order to offset this risk.
It’s also worth noting that in some cases, the lender may require a larger downpayment even if the borrower has a high credit score and is looking for a smaller loan. This may be the case if the borrower has a high debt-to-income ratio or if the property being purchased is in a less desirable location.
THE HBP
Another factor to consider when it comes to conventional mortgages and downpayments in Canada is the Home Buyers’ Plan (HBP). This is a program offered by the Government of Canada that allows first-time home buyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) to use as a downpayment on a home. This can be a useful way to come up with the necessary funds for a downpayment, especially for those who may not have a lot of cash available upfront.
Long Term Benefits of Larger Conventional Mortgage Downpayment
Finally, it’s worth considering the long-term benefits of making a larger downpayment on a conventional mortgage. While it may be tempting to put as little money down as possible in order to keep your monthly payments low, it’s important to remember that a larger downpayment can ultimately save you money in the long run. This is because a larger downpayment means you will have to borrow less money, which means you will pay less in interest over the life of the loan.
Conclusion
In conclusion, conventional mortgages are a popular choice for home buyers in Canada, and the size of the downpayment is an important factor in getting approved for a loan. While a larger downpayment may make it easier to get approved, there are other options such as having a cosigner or using the Home Buyers’ Plan to come up with the necessary funds. It’s important to carefully consider the long-term benefits of a larger downpayment and how it may affect your overall loan and financial situation.
Are you ready to take the first step towards securing a conventional mortgage for your dream home? Contact Capital Mortgages today! Our team of experienced mortgage brokers will work with you to find the best mortgage solution to meet your needs. Whether you have a high credit score and are looking for a large loan, or you are a first-time home buyer with questions about the Home Buyers’ Plan, we can help. Don’t wait any longer to start the process of becoming a homeowner. Contact Capital Mortgages today and let us help you make your dream a reality.
We here at Capital Mortgages in Ottawa look forward to assisting you with all your Ottawa mortgage needs. Contact us today by calling us at: 613-228-3888 or email us direct at: info@capitalmortgages.com
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