Hoping to purchase a home this spring but unsure how much you need for a down payment? Don’t worry! This aspect of home buying is essential to understand, and I’m here to provide you with a quick breakdown of the minimum requirements.

1. 5% Down Payment for Homes Under $500,000

If the purchase price of your home is under $500,000, you can put down as little as 5%! This is an excellent option for first-time homebuyers who may be saving for a down payment. For instance, if you’re purchasing a home priced at $400,000, your minimum down payment would be $20,000.

2. 10% Down Payment for Homes Priced Between $500,000 and $999,999

For homes priced between $500,000 and $999,999, the calculation changes slightly. You will need to put down 5% on the first $500,000 and 10% on the remaining amount. For example, if you are buying a home for $750,000, your down payment would be:

  • 5% of $500,000 = $25,000
  • 10% of $250,000 = $25,000
  • Total Down Payment = $50,000

3. 20% Down Payment for Homes Over $1 Million

If you’re purchasing a home for over $1 million, the minimum down payment required is 20%. For example, on a $1.2 million home, your down payment would amount to $240,000. One of the significant advantages of putting down 20% is that it eliminates the need for mortgage default insurance, which can save you money on your monthly payments.

4. Mortgage Default Insurance

If your down payment is less than 20%, you’ll be required to obtain mortgage default insurance. This insurance, provided by institutions like CMHC (Canada Mortgage and Housing Corporation), protects the lender in case you default on your mortgage. While it adds an extra cost, it allows buyers with smaller down payments to enter the housing market.

5. Saving Strategies for Your Down Payment

Building your down payment can feel like a daunting task, but here are some practical strategies to help you save:

  • Set Up a Dedicated Savings Account: Open a high-interest savings account specifically for your down payment to keep your savings organized and easily accessible.
  • Home Buyers’ Plan (HBP): Take advantage of the HBP that allows first-time homebuyers to withdraw up to $35,000 from their RRSPs (Registered Retirement Savings Plans) without penalties, provided you repay it over 15 years.
  • Seek Gifts from Family/Friends: Many homebuyers receive financial help from family or friends as a gift toward their down payment. Ensure you document this properly, as lenders may require confirmation that the funds are a gift and not a loan.

Planning your down payment is a crucial step in the home-buying process. Understanding the options available to you can help you make informed decisions and put you on the path to becoming a homeowner. I always suggest meeting with me early so that we can together formulate a budget and plan, ensuring you’re financially set to buy your dream home!