Do I have to sell my soul to own an Okanagan Home?

It is not a far stretch in some minds to consider the idea of buying an Okanagan home to be as exacerbating as having to sell one’s soul to accomplish the Canadian dream of homeownership today.

Is it true though? Do you have to strike a deal with the devil to call those sweet house keys yours?

Call me the devil’s advocate here, but I dare say it is not such a steep trade. Don’t get me wrong, I am not saying it is cheap or that it won’t come with some sacrifices to be able to call yourself an Okanagan homeowner, but in today’s blog, we are going to review a few tidbits of information that relate specifically to the downpayment costs required for you to get into a home in BC as this is typically the biggest hurdle for most folks in the buying process.

So, what does a downpayment cost these days?

There is a tiered system in BC for determining how much downpayment you need to cough up for a conventional lender or bank to offer you a mortgage.

That tiered system looks like the following:

[1] Purchase price up to $500,000              —————–> You need at minimum a 5% downpayment.

Purchase price between $500,000 and $999,999 —–> You need 5% of the first $500,000 and 10% of the amount above $500,000.

Purchase price $1million or more                 —————> You need 20% downpayment across the board.

The larger your purchase price, the more “skin in the game” the lender wants you to have to give them greater assurance that you are invested in this asset and will continue to pay your mortgage monthly.

For example, on a $700,000 purchase (the approximate average townhouse price in May 2023 for the Central Okanagan), you would be looking at the following downpayment requirement:

($500,000 x 0.05%) + ($200,000 x 0.10%) = $25,000 + $20,000 = $45,000 minimum downpayment

Obviously, you are always welcome to make a higher downpayment and the banks will love you for that as the increased downpayment equals increased security for them, but this is the bare minimum.

Now, in the mortgage world, there is this mandatory item called mortgage insurance that is often required to protect the lender in case YOU default (i.e. do not pay) your monthly mortgage payments as promised. The magic threshold where you do NOT have to pay mortgage insurance is set at 20%. Anything less than 20% and you will HAVE TO pay mortgage insurance, which is a calculated amount ranging anywhere from 0.6% to 4.5% of your mortgage loan amount (that’s the chunk of change that you borrowed from the bank); the actual amount depends on how much downpayment you invest initially. If you put down more than 20%, the lenders consider you to have your teeth sunk far enough into your slice of pie as to not require you to pay an additional mortgage insurance amount.

Mortgage insurance is a cost that you can either roll into your monthly mortgage payment amounts or you can pay it off in a lump sum chunk at the time of purchase, that is up to you depending on the funds you have available.

In today’s Okanagan real estate market, it is very common to see friends buying properties together, parents helping with downpayments or co-signing for mortgages and more and more I am seeing the Boomer generation gift a living inheritance to their grandchildren to help them get a foot in the door.

It is no small feat to make a splash into the world of homeownership, but with hard work, saving, making small sacrifices (maybe consider giving up that fourth coffee a week or indulge a little less in the finer pleasures in life) that are not nearly as critical as your soul and managing your expectations about what your next property will look like, you too could be the recipient of a warm set of house keys in the near future!

If you are a first-time home buyer and you want to learn about more valuable insights and savings available to YOU, you can check out my article on the Perks of Being a First Time Home Buyer HERE.

If ever you have questions about how the buying process works, you can watch my step-by-step Home Buyer video series HERE or ask me any questions you may have and I will do my best to provide the answers!

[1] https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html