This is the question my clients ask me most before they even start thinking about looking for a home. The good news is that the amount is usually much smaller than people imagine. Here's exactly how much you need, based on the price of the home, and what happens if you put down less than 20%.
In Canada, the minimum down payment depends on how much the property costs.
For homes up to $500,000, the minimum is 5% of the price. For homes between $500,000 and $1.5 million, it's 5% on the first $500,000, plus 10% on the rest. For homes of $1.5 million or more, the minimum rises to 20%.
For example, for a $500,000 home, the minimum down payment would be $25,000. For a $700,000 home, it would be $25,000 (5% of the first $500,000) plus $20,000 (10% of the next $200,000), for a total of $45,000.
If your down payment is less than 20% of the home's price, Canadian law requires your mortgage to be insured, known as CMHC mortgage loan insurance. This insurance protects the bank, not you, but it's what lets you buy with a lower down payment.
The cost of this insurance is calculated as a percentage of your loan amount (not the home's price), and it depends on how low your down payment is:
With a down payment between 5% and 9.99%, the insurance costs 4% of the loan. Between 10% and 14.99%, it costs 3.1%. Between 15% and 19.99%, it costs 2.8%.
For example, on a $500,000 home with a 5% down payment, your loan would be $475,000. The insurance, at 4%, would be $19,000, and it's usually added to the loan rather than paid in cash separately. In Ontario, this insurance also carries a provincial tax, which is paid separately in cash and can't be financed.
A lot of people stop trying because they think they need to save the full 20% before they qualify. In reality, most first-time buyers buy with 5% or 10%, and use the insurance to cover the difference. Waiting extra years to save the full 20% often ends up costing more than starting sooner, especially if prices keep rising while you save.
It depends on the price. For homes up to $500,000 it's 5%. Between $500,000 and $1.5 million it's 5% of the first $500,000 plus 10% of the rest.
Yes, it's required by law. The cost ranges between 2.8% and 4% of your loan amount, depending on how low your down payment is, and it's usually added to your mortgage.
Not necessarily. Buying sooner with a smaller down payment can work out better than waiting years while prices rise, depending on your situation.
If you want to calculate exactly how much you'd need for your budget, send me an email with your question at contact@nataliarendon.ca, or I'll see you at the free seminar "From Renter to Homeowner: How to Buy Your First Home in Canada".