When most people think about buying a home, the biggest hurdle is often the down payment. While personal savings are the most common source, they’re far from the only option. Understanding the different ways you can fund a down payment may open doors you didn’t realize were available.
The minimum down payment isn’t one fixed number – it’s based on the purchase price of the home:
- Homes up to $500,000: Minimum 5% down
- Homes between $500,000 and $1,499,999: 5% on the first $500,000 and 10% on the portion above $500,000
- Homes $1.5 million and over: Minimum 20% down (no insured option)
That means if you’re buying a home for $800,000, you could qualify with a 5% down payment on the first $500,000 and 10% on the remaining $300,000.
Down payments below 20% require mortgage default insurance, which is added to your mortgage amount. This protects the lender and comes with specific qualification requirements.
Savings
Using your own savings is the most straightforward approach. Funds accumulated in accounts like tax-free savings accounts (TFSAs), RRSPs (through the Home Buyers’ Plan) or regular savings accounts are widely accepted by lenders. This option typically provides the strongest application since it shows financial discipline and reduces your overall debt load. It also means fewer ongoing obligations after closing.
Proceeds from the sale of another property
If you already own a home, the equity you’ve built can be a powerful tool. When you sell your property, the proceeds – what’s left over after paying off your existing mortgage and expenses – can be applied toward your next purchase. In many cases, this allows buyers to make a larger down payment, which can lower monthly payments and potentially reduce or eliminate mortgage insurance costs.
Gifted down payment
Many first-time homebuyers receive help from immediate family members. A gifted down payment is a common and accepted option, provided it’s properly documented. Lenders will typically require a signed gift letter confirming that the funds are not expected to be repaid. This can be a great way to bridge the gap for buyers who have strong income but haven’t had enough time to save a full down payment.
Borrowed down payment
In some cases, it’s possible to borrow your down payment through a personal loan or line of credit. While this option can help buyers get into the market sooner, it comes with additional
responsibility. You must be able to demonstrate that you can comfortably manage both the new mortgage payment and the borrowed funds. Lenders will carefully assess your income, debt ratios and overall financial stability before approving this structure.
The key with any down payment strategy is making sure it aligns with your broader financial picture. Each option can be beneficial, depending on your goals, timeline and comfort level. Exploring these options with your mortgage agent can help you structure your purchase in a way that makes financial sense for you.
Looking to build your down payment plan? Answers to all your questions are a call or email away!