It has always been an issue for home buyers to save their down payment. Many
people, on advice from various people wait to save 10%, rather than moving into
the home sooner with 5% as a down payment This is not always a good idea. Let me
explain;
We have 2 young couples, the Jones' and the Smiths. They both have the same
amount of money to spend on housing and saving ($1000/month). From that $1000,
they are paying their rent of $750/month, and saving the other $250 for their
down payment. In fact they're identical people.
The Jones' and the Smiths are both looking to buy a $100,000 property. As
such, they will need $5000 as a down payment if they purchase at 5% down, or
$10,000 if they wish to have 10% as a down payment.
To date, they have both saved $5000 with which to purchase a property. The
Jones' have decided to buy now and accept that they only have 5% as a down
payment The Smiths' have decided to wait until they can raise 10%; thus saving
themselves some CMHC costs.
What the Smiths' aren't realizing is that while they wait, the cost of the
property is increasing... thus incrasing the amount of money they need as a
downpayment.
They've also not taken into account that the money they are paying in rent is
being thrown away, while they could have been putting that against their
mortgage.
Sure, saving the CMHC fees is a good idea. But is it necessarily the right
way to go? Not always.
If it takes the Smiths an extra 2 years to save up the extra money, the
property could have increased by as much as $15,000 in that time.... meaning
that they'd need more of a down payment, as well as having a larger mortgage
than if they'd bought earlier.
