Think you have got the homebuying process all figured out? Give that a second thought! Most buyers usually assume they have done their homework and know everything there is to know about homebuying and homeownership. But at the very last second, it hits them - they have been believing something that’s not even true. A lot of such misconceptions homebuyers have are about their down payment. Due to these wrong assumptions, their homebuying plans get pushed back, and they miss out on great opportunities.
Want to make sure you don’t fall for these down payment myths when buying your first home? Keep reading to find out what’s accurate and not true about the down payment.
Myths Homebuyers Believe And What You Actually Need to Know
➔ About Down Payment Assistance Programs
MYTH #1 - Only Low-Income Homebuyers Can Qualify for Assistance
Many homebuyers assume they won’t qualify for these programs if they make a decent income. That’s simply not true! Yes, some assistance programs do have income limits. But there are a whole lot of other programs that focus on helping first-time buyers in specific regions or with particular needs. Some municipal programs also base eligibility on home price rather than just income.
The Reality: You may still qualify for the assistance programs even if you earn a decent income.
MYTH #2 - All Down Payment Assistance Comes with a Catch
It’s easy to think that all financial assistance comes with hidden strings—for instance, extra debt, interest, or giving up part of your home’s equity. However, not all assistance programs work that way. Take, for example, the Region of Waterloo Affordable Home Ownership Program. Under this program, you can get a forgivable loan as long as you meet the conditions. Even some real platforms like Tonsto offer down payment assistance with no strings attached. The goal of these programs is to simply make homeownership affordable for you.
The Reality: Some programs are designed to truly help you with the down payment without adding financial stress.
MYTH #3 - These Programs Cover the Entire Down Payment
Wouldn’t it be great if there was a program that covered your entire down payment? Unfortunately, the assistance programs help only with a portion of your down payment. This means you will still need some funds of your own. However, that doesn’t mean these programs aren’t helpful. Let’s say a program gives you assistance of up to $50,000. That’s $50,000 less. You have to come up with it! In some cases, that could be the difference between buying now or waiting years to save more.
The Reality: The down payment assistance programs don’t cover your entire down payment. It eases your financial burden and helps you achieve homeownership sooner.
➔ About the Minimum Down Payment Required
MYTH #5 - You Need a 20% Down Payment to Buy a Home
This is something a lot of homebuyers get wrong. Sure, with a 20% down payment, you won’t have to pay for mortgage default insurance. However, a 20% down payment is not a hard and fast requirement. In fact, you can buy a home with as little as 5% down (for homes up to $500,000). If the home costs between $500,000 and $1,499,000, you’ll need 5% for the first $500,000 and 10% for the portion above. You’ll need to put down a 20% down payment only if the home price is $1,500,000 or more.
The Reality: You can become a homeowner with a down payment as low as 5%.
MYTH #6 - You Can Buy a House With 0% Down Payment
Yes, technically, you can buy a house with no money down. But you will have to borrow the down payment. You must find an alternative lender willing to provide you with the down payment funds. That’s because the government doesn’t allow you to borrow your down payment from your mortgage lender. This is true if your lender is a bank or federal trust company.
The Reality: You can buy a home without putting down any money upfront. But you will have to borrow the money, which means you will have to pay it back later - with interest.
➔ About Sources of Down Payment
MYTH #7 - You Can Only Use Your Savings for the Down Payment
A lot of homebuyers think their down payment must come from their personal savings. While savings are one option, they’re not the only one! There are many other ways through which you can fund your down payment -
- Down payment assistance programs
- Leveraging the home equity of a co-signer
- Using a gifted down payment
- Taking a loan against your life insurance policy
The Reality: Other down payment sources apart from your savings can help you reach your homeownership goal faster.
MYTH #8 - You Can Use a Credit Credit for Your Down Payment
No, you cannot put your down payment on a credit card. Credit card is usually considered unsecured debt. Hence, it is not an approved source for a down payment.
The Reality: Your down payment funds should come from approved sources. Contact a mortgage specialist to learn more about approved sources of down payment.
MYTH #9 - You Don’t Need Proof of Your Down Payment
Before a lender approves your mortgage, they will ask for proof of where your down payment is coming from. If you are using savings, lenders will ask for bank statements. If it’s a gift from a family, you will need a letter confirming it’s a gift (not a loan). If you’re using RRSPs, you’ll need a withdrawal confirmation.
The Reality: Be prepared to show proof of where your down payment money is coming from.
Get the Facts Straight Before You Start Your Homeownership Journey
The internet is filled with outdated and misleading information. Even your well-meaning friends might not have the correct details. So, verify the facts before believing anything you hear about a down payment or any other home-buying aspect. If possible, you should consult with a real estate professional or mortgage expert. They can help you understand everything you need to know about a down payment and avoid costly mistakes. You can make informed, confident homebuying decisions with the proper knowledge and expert guidance.
.jpg)
.jpg)
