The Lowdown On Down Payments

I get questions about downpayment all the time! So here is the lowdown on how much you need and how you might get it.

How much do you need?

Many Canadian homebuyers purchase a property with the absolute minimum downpayment. The thing is, the minimum can vary, so you want to be sure you know how it’s calculated.

Will you live in the home? If the house will be owner-occupied, then you need 5% down for the first $500,000 of the purchase price and 10% for any amount over $500,000 up to $1,499,999.  If the purchase price is $1,500,000 or more, the minimum down is 20%.

Hoping to skip the cost of mortgage default insurance? Then you’ll need at least 20% down. Any downpayment less than 20% of the purchase price requires this insurance, which will be added to your mortgage principal.

Buying a rental or recreational property? If it’s not going to be your own principal residence, then you’ll need 20% down. Genworth and CMHC have a vacation/second home program that allows you to put 5% down but mortgage default insurance will be required. Rental properties require 20% down.

Are you new to Canada? If you’re a permanent resident, then you’ll need the same downpayment as a Canadian citizen: 5% for the first $500,000 and 10% after that. If you are a non-permanent resident, then you’ll need 10% down.  And if you’re not a resident of Canada, then you’ll need at least 35% down from your own resources (not borrowed).

Smart ways to come up with a downpayment

If you’re looking to buy a second home, refinancing your existing home is often the best way to get a downpayment. The best starting point is a review of your situation.

If you’re saving for your first home, here are some ways to come up with the cash:

1. A financial gift. If you’re lucky enough to receive financial support from a parent or other blood relative, you’ll need to get a signed form stating that the funds are a gift and that you are not required to pay them back at any time.
2. Your RRSP: You can withdraw up to $35,000 tax-free from your RRSP or $70,000 per couple.  The recent federal budget increased this from $25,000 and also announced that in 2020, this program will be available to divorced individuals.  You will be required to pay the funds back over 15 years.
3. FHSA: An FHSA combines some of the features of an RRSP and TFSA. Contributions will generally be tax-deductible, and when a qualifying withdrawal is made, the amount withdrawn is not-taxable.
4. TFSA/Investments: If you withdraw from your TFSA to boost your downpayment, you’re allowed to re-contribute, so you never lose your TFSA room.  If you haven’t set up a TFSA, then do it today and set it up so money goes in every month.
5. Early inheritance: Many parents and grandparents would rather help their children purchase a home while they’re alive than have them wait for an inheritance.
6. Sell assets: For instance, a vehicle or jewelry. You need to show 3 months of bank statements to support your downpayment and explain any large deposits.
7. Money from outside of Canada: If you’re bringing funds from outside of Canada, you’ll want to have those funds in Canada for at least 30 days before closing, and you’ll need to provide 3 months of financial history from the original account they came from.

Often, homebuyers are actually closer than they think to buying that first or next property. Get in touch any time. Early advice can save time, money and stress!