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Down Payments

Stacks of Coins

You can buy with less than you think.

The minimum down payment that you will need will be based off of the purchase price. Here in Canada, down payment requirements are as follows:

Purchase Price:                                         Minimum Down Payment:

< $500,000                                                5% of purchase price

$500,000 - $999,999                               5% of the first $500,000 of the purchase price

                                                                  10% for the portion of the purchase price above $500,000

> $1,000,000                                           20% of purchase price

Down payments can come in the form of savings, RRSP, investments or gifts. All lenders will need to see a 90 day transaction history of the funds, which includes all transfers, and money going in and out of the account.  Canada has very strict anti-money laundering laws that all lenders must abide by, which is why the history on the funds are needed.

 

When receiving a gifted down payment, whether it is the whole amount or just a portion of it, it must be from an immediate family member.  You will also need to fill out a gift letter form. Most lenders have their own form, and we will help you access and navigate that if needed

Minimum Down Payment Example.

Purchase Price $800,000

$500,000 X 0.05 = $25,000

+

$300,000 X 0.10 = $30,000

Total Minimum Down Payment = $55,000

Mortgage Insurance

If your down payment is less than 20% of the purchase price, you MUST have mortgage insurance in Canada. It is meant to protect the lender incase the borrower cannot make mortgage payments for whatever reason. It is insurance that is paid by the borrower but it protects the lender. If the lender requires the insurance, then the lender will organize getting it. The payment for the insurance will be wrapped into your regular mortgage payments. This is called a mortgage premium. 

For many homeowners, saving up to have a 20% down payment and avoiding home insurance premiums is not a feasible option.  With the ability to have a down payment of only 5%, home insurance premiums give the opportunity to many clients to purchase a home, rather than renting.

 

The 3 Mortgage Insurance Companies in Canada are:

Canada Mortgage and Housing Corporation (CMHC)

Sagen

Canada Guarantee Mortgage Insurance Company

Closing Costs vs Down Payment

Keep in mind, the down payment is what you are going to use for your mortgage, but it is not the full amount of funds needed to complete your purchase.  Closing costs, or the costs associated with buying a home, also include property transfer tax, legal fees, title insurance, appraisals, realtor fee’s, and even the cost of moving itself. 

These are all costs that need to be factored into the equation of how much “down payment” or liquid cash you need to have on hand.

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