Securing Your Down Payment

A key part of any mortgage application and home purchase is the down payment. In Canada, borrowers must contribute a minimum amount from their own funds or a gift from an immediate family member.

While most buyers know a down payment is required, many are unaware of the rules on fund sources and the importance of proper documentation.



When it comes to preparing your down payment and working towards your perfect home, here are a few things to keep in mind:

SOURCES OF DOWN PAYMENT

Lenders are required to verify the source of funds for your down payment to ensure that they come from an acceptable source. Traditional options for your down payment include your savings and/or investment account(s), a gift from a family member, or the use of your Registered Retirement Savings Plan (RRSP).

Depending on the lender we proceed with, you will need to provide the most recent consecutive 1–3 months (30–90 days) of account history for all money being used towards your down payment, including all accounts, transfers, and sources.

HOW MUCH DOWN?

When putting money down on your new home, you need to consider the minimum down payment required as well as additional fees.

NOTE: Effective December 15th, 2024, changes are now in effect for default insured mortgages:

If you’re purchasing a home you plan on living in (your primary residence), or a second home you plan on occupying part of the time, the minimum amount required in Canada is 5% for the first $500,000, with 10% down on any amount beyond that threshold up to $1,499,999.99.

If your down payment is less than 20% of the price of your home, you will be required to purchase mortgage loan insurance in case of default.

1. Higher Price Cap for Insured Mortgages

Homes valued up to $1.5 million are now eligible for insured mortgages (increased from the previous $1 million cap).


• This applies to buyers needing high-ratio mortgage insurance (required when your down payment is less than 20% and your loan-to-value ratio is over 80%).


To qualify:

The property’s value must be under $1.5 million (up to $1,499,999.99).


The required down payment is:

• 5% on the first $500,000 of the purchase price.

• 10% on the portion of a purchase price between $500,000 up to $1,499,999.99.

2. 30-Year Amortization for First-Time Buyers and New Builds

Buyers can now access 30-year amortizations if they qualify for high-ratio mortgage insurance and are:
• First-time homebuyers, OR

• Buying a newly constructed home. (A newly constructed home is one that has not been previously occupied for residential purposes. This includes newly built condominiums, even if there was an interim occupancy period before final ownership transfer).



3. Who Qualifies as a First-Time Homebuyer?

You’re considered a first-time buyer if any of the following apply:

• You’ve never purchased a home before, OR

• You haven’t lived in a home you or your spouse/common-law partner owned in the past four years, OR
• You recently experienced the breakdown of a marriage or common-law partnership.

If you’re purchasing a home that is $1.5 million or more or an investment property you plan on renting out entirely, a minimum of at least 20% is required for your down payment.

ADDITIONAL COSTS AND FEES

Closing costs are typically 1.5% up to 4% of the purchase price and include legal fees. Depending on the lender, you may be required to show that you have enough to cover these costs, which will include providing bank statements.

To ensure a smooth process, make sure you communicate to me how much you’re contributing towards your down payment as well as where the funds are coming from, and ensure those funds remain in your bank account until provided to your lawyer to complete the purchase at closing. This is because lenders will often request updated statements closer to the closing of the sale to ensure nothing has changed. If money has been moved around, or if there are new large deposits or withdrawals, they will all need to be confirmed and could affect your approval.

In summary, a down payment is a critical part of the home-buying process, and there are many important factors to consider. By keeping the sources of your down payment in mind, understanding how much down you need, and taking into account additional costs and fees, you’ll be well on your way to finding the perfect home.

Thinking of buying within the next 4 months? Get in touch and I can help guide you through the process to getting pre-approved and find the best lender and mortgage product for you!