Reasons to buy a house with 5% down payment

Too often we hear of reasons why buying a house with 5% down isn't the optimal choice. Despite the naysayers, I'd like to share with you why I believe purchasing a home with 5% down is a superb opportunity for all Canadians. Many people's rule of thumb is to put 20% down to avoid paying CMHC default insurance that costs 4% of the purchase price. Although this will be added to the mortgage payments and amortized over the course of the mortgage, it shouldn't deter you from pulling the trigger on buying a home.

Of course, you are only able to purchase a primary residence with 5% down, and if you want to purchase an investment property, you must put a minimum of 20% down.

1) Your declaration of personal sovereignty

I firmly believe that every Canadian Citizen should own their home. A home is an expression and extension of self. We rarely put emphasis on the healing elements that a home gives and how it can help one's mental health. Knowing that your property is truly yours definitely has subconscious benefits. If you decide to paint your house yellow, plant a garden and remodel the space, it is truly your oasis; crafted to your liking. Seeing your nest and caring for it is truly meaningful. Personally, my home has been a safe haven. When we want to go in the backyard and enjoy a fire, or take a swim in the pool, we don't need to ask for permission. We do as we please. It seems that this element of freedom is taken away when living in a rental, as these investments aren't made by landlords. Also, when owning your home, you aren't subject to the roller coaster of potential changing ownership, rent increases, being forced to move out etc.

2) Enhanced lifestyle, right away

To save 20% down on a home, for most of us is a serious undertaking. It can take years of saving tooth and nail to be able to reach the 20% of the cost of a house nowadays. What purchasing a house with 5% down allows Canadians to do is to have the gratification of the house, and to start living how they'd like to much sooner than later. I would even go as far to argue the point that considering how much mortgage paydown and property appreciation that happens since the time of ownership, you could actually be in relatively the same spot a few years down the line. You could actually be further ahead if you purchased a fixer upper with 5% down and forced appreciation through strategic renovations, but that's the topic for another article all together.

3) Equity, sweet equity

The most incredible perk of home ownership is the equity that you gain. It's one of the few justices in this world that can help the common man. For instance; if you purchased your home for $350,000 and did updating and now it is worth $450,000, you made $100,000 of equity. This money can be tapped through a Home Equity Line of Credit and used to purchase more assets. Let's take it a step further now, for the sake of the example. You purchased the house in 2018, and paid $350,000. Now after making your mortgage payments, your mortgage paydown, the outstanding balance is $310,000. Now the spread between what you owe and what it's worth is even bigger, and you have $140,000 in equity. So if you had waited 5 more years till you had 20% to buy the house, you would've missed out on this equity. We call this opportunity cost.

4) Paying the extra isn't a bad thing

The CMHC default insurance isn't too painful as it's amortized over the course of the mortgage. That being said, the difference in the mortgage payment is so minimal, that it wouldn't affect your life. The upside to it is that if you do come on hard times, you are insured. This brings peace of mind when venturing into the largest investment of your life.

5) Unlocking your creativity

If you've ever felt that living in a rental is limiting, it's because it truly is. When you own your home, you can invest in what you love. If you've been dreaming to make a soundproof music room, have at it. Crank the Marshall amps and have your pal smash the cymbals as loud as possible! Living on your own terms and doing things for yourself is healthy. In today's age, we are always being pulled in different directions to accomplish tasks for others. A home will ground you and help you breathe easier in this wild world.

What are your thoughts? Do you think it's worth it to buy with 5% down?