How does the down payment work in Canada?

One of the crucial components of buying a house in Canada is the down payment. In this blog, we will discuss how down payments work when buying a house.

A down payment is the amount of money that a buyer pays upfront when purchasing a property. This payment is typically a percentage of the total purchase price of the property. In Canada, the minimum down payment required varies depending on the purchase price of the property. If the purchase price is less than $500,000, the minimum down payment is 5% of the purchase price. For purchase prices between $500,000 and $999,999, the minimum down payment is 5% for the first $500,000 and 10% for the portion of the purchase price above $500,000. For purchase prices of $1 million or more, the minimum down payment is 20%.

It is essential to note that a larger down payment can often result in a lower monthly mortgage payment and less interest paid over the life of the mortgage. Additionally, if the down payment is less than 20% of the purchase price, the buyer will also need to pay for mortgage default insurance. This insurance protects the lender if the borrower defaults on their mortgage payments and is required by law in Canada for down payments less than 20%.

The source of the down payment can also play a role in the home buying process. The down payment can come from a variety of sources, including personal savings, gifts from family members, or investments. It is important to note that the down payment must be verified by the lender and cannot be borrowed.

In conclusion, it is important to remember that lenders will always check 3 things when you apply for a mortgage. They will check your income, credit bureau and your down payment. It is essential to understand the down payment requirements and to have a plan in place to ensure that you can meet them when purchasing a home.