Down Payments

Down Payments For Buying A Home

All lenders expect you to put some cash towards your home purchase, which is called a Down Payment. The minimum down payment in Canada is 5% of the purchase price.

A down payment of less than 20% of the home price is called a high-ratio mortgage, and although you can get the same interest rate as someone applying for a conventional mortgage (greater than 20% down), there will be CMHC (or Sagen) insurance fees attached that protect the lender. The amount of insurance fees charged is relative to the mortgage size and your down payment amount (considered to be the current level of equity in the home). So, the more money you can save and put toward your down payment, the lower your mortgage and payments will be.

A down payment becomes increasingly important if your credit history is less than stellar. Some lenders will overlook past credit blemishes, or not verify income and other financial status, if you are able to provide 35% to 40% of the purchase price for your down payment.

Your down payment, the initial equity that you build in the home, will go to the banks in the unfortunate event of foreclosure. Hence, the larger the down payment, the more protection the banks have. This is why your CMHC (or Sagen) fees are higher if your down payment is lower. For CMHC fees information, follow the link: CMHC Mortgage Loan Insurance Costs.

Tip: Be sure to have your down payment ready at least 30 days before you apply for a mortgage loan.

Ways to Accumulate a Down Payment

If you're considering a home in your future, it's a good idea to start saving as much as you can, as soon as you can. If you've already talked to mortgage lenders and they've informed you that your down payment is insufficient, make it a priority and find ways to save money such as foregoing a new car or a vacation trip.

If you have enough equity in your RRSP, you can borrow the money from your account up to $35,000.

A down payment may also be borrowed from a secured line of credit or can be gifted from a family member.

Note: Rules and guidelines are subject to change. Please inquire within. ​​