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First Time Homebuyers Series Part Four – The Down Payment

General Nazarina DiSpirito 13 Jul

The Down Payment

The down payment may be the first thing first time home buyers consider when looking to make their first home purchase. 

A down payment is what you pay up front when you purchase your home, with the remainder of the cost being paid through a mortgage.

When you apply for a mortgage, you will need to determine (1) How much of a down payment you will be making and (2) Where the down payment is coming from.

How much?

Calculating your minimum down payment is no longer as simple as 5% of your purchase price.  In Canada, the minimum amount of money you need to put down on a home is determined by the purchase cost:

  • – For homes costing $500,000 or less, the minimum amount needed to put down is 5%.
  • For homes costing more than $500,000 and less than $1 million, the minimum needed to put down is 5% of the first $500,000, and 10% of the remaining balance.
  • – For homes costing $1 million or more, the minimum down payment is 20%.

If you put down less than 20% your mortgage will be considered to be “high-ratio,” which will require you to pay an insurance premium. 

Where is the down payment coming from?

In today’s hot market, it may be difficult for first time home buyers to pull together enough to make a down payment.  However, first time buyers should be aware that a down payment can come from a variety of sources, not just their savings.  A down payment can come from cash in the bank, RRSPs you may have, or even as a gift from family.*

*Note: if you are using gifted money for your down payment, the person gifting the money will need to sign a gift letter with you, and they may need to show evidence that they have these funds.  

First time home buyers should also be aware that if you are putting less than 20% down, the funds for the down payment will need to be in your account for at least 90 days and you will have to produce bank statements to confirm this amount. If you are putting more than 20% down, some lenders will accept a 30 day confirmation of funds.