When purchasing your next home, most know that you need to have a minimum of 5% of the purchase price saved for the down payment. But did you know that you’re required to show proof of closing costs as well?
This will be conditioned in your mortgage approval and you must prove these funds for closing costs in the form of 1.5% of the purchase price.
For example, on a $500,000 purchase price you’ll be required to have an additional $7,500 in your account to cover legal fees, appraisal costs, title insurance, property transfer tax, moving expenses etc.
So when you’ve worked hard to:
- Save up your down payment
- Boost your credit score
- Get a good job to afford a home
- Discover the right property
Finding out that you’ll need more money for these expenses can end up feeling like a bit of a bummer.
This is one situation where a cash-back mortgage can be useful to get you back on track and moving forward.
A cash-back mortgage is similar to getting cash back from your credit card, but from your mortgage instead.
Here’s how it works…..
Apply for a principal mortgage amount that allows you to purchase your next home. During this application process, speak with your advisor regarding the option of cash-back from the mortgage funds to see whether this feature is something best suited for you. Based on this conversation, you can request between 1 – 5% of purchase price to be provided to you at the time of closing. It’s important to know that this additional amount is included in the mortgage funds, so this will be part of the principal amount that you will be charged interest on, which is why it’s important to review all options before going ahead.
Unlike a purchase plus improvements mortgage, you are not required to prove what you intend to use the funds for prior to it being deposited into your account. So for example, if the plan is to do upgrades to the home, you won’t be limited by having to supply cost sheets, contractor quotes or be subject to restrictive completion dates. Once the money is in your account, it’s yours to spend as you wish!
If you have any questions on whether a cash-back mortgage is the right solution for you, contact us today!
Remember, if you got your mortgage anywhere else, you probably paid too much!