Down Payments In Canada: How (And How Much) To Save
TL;DR: Down payments in Canada
A down payment starts out as a percentage of a home’s sale price.
Your down payment might be higher than the legal minimum depending on your credit profile, the mortgage stress test and the lender you borrow from.
A down payment does not include closing costs.
There are several tools available to help you save up a down payment.
True or false: You have to provide a 20% down payment to qualify for a mortgage in Canada.
In many cases, that is false. Minimum down payments in Canada start at 5% and go as high as 20%, depending on the price of the home being purchased.
Finding that out can be a relief, but there’s a lot more to know about how down payments work and how to save up for one.
How much is the down payment on a house in Canada?
BACK TO TOPWhen you get a mortgage, the down payment is the amount you pay upfront. It represents a portion of the price of the house you hope to buy.
Canada’s lending rules have specific guidelines around minimum down payment sizes:
For homes under $500,000, the minimum down payment is 5%.
For homes between $500,000 and $1,499,999, you need 5% for the first $500,000 of the purchase price and 10% for the amount above $500,000.
For homes costing $1.5 million or more, the minimum down payment is 20%.
You may be required to make a larger down payment if:
You are self-employed or have a poor credit history.
The mortgage stress test reduces the amount you’re able to borrow and putting more down makes up the difference.
You may have to make a 20% down payment if:
You get your mortgage from an alternative lender. Most require 20% down payments.
You’re buying an investment property you don’t intend to live in.
You want to get a 30-year mortgage but aren’t a first-time home buyer or buying a newly built home.
You want to avoid paying mortgage default insurance. These insurance premiums get added to your mortgage amount, which results in higher borrowing costs.
Down payment examples
Final sale price | Minimum down payment | 10% | 20% |
|---|---|---|---|
$300,000 | $15,000 (5%) | $30,000 | $60,000 |
$600,000 | $35,000 (5% + 10%) | $60,000 | $120,000 |
$900,000 | $65,000 (5% + 10%) | $90,000 | $180,000 |
$1,200,000 | $95,000 (5% + 10%) | $120,000 | $240,000 |
How to save for a down payment
BACK TO TOPSaving a down payment is rough work. It generally requires a combination of disciplined approaches that includes:
Paying off high-interest debt. This is a strong starting point. Saving money is always easier if you don’t have credit card bills or loans eating into your paycheque each month.
Cutting down on spending. Living at home or getting a roommate can lower your rent expenses, but you’ll also have to reduce lifestyle spending if you’re serious about building a nest egg.
Setting a monthly savings goal. Having an attainable goal in mind is like creating a loose budget. Use this as your down payment savings north star.
Savings tools that can help you save a down payment faster
RRSP
TFSA
FHSA
GICs and HISAs
If you’re investing your down payment savings, it should probably be done over a longer time period so you can ride out market downturns. GICs and HISAs may be better if you have a shorter savings window.
Down payment savings methods: A comparison
BACK TO TOPIndividual Maximum | Couple Combined Maximum | Tax Implications | Best For | |
|---|---|---|---|---|
RRSP (HBP) | $60,000 | $120,000 | Deposits: Tax-deductible. Withdrawals: Tax-free (for first home purchase) Gains: Tax-deferred while inside of the account. | Long-term investments. Homeowners who can afford repaying their RRSPs |
TFSA | $7,000 per year of account eligibility. | Combined contribution room | Deposits: None. Withdrawals: None. Gains: Tax-free. | Long-term investments. Liquidity. Maxed-out FHSA holders. |
FHSA | $40,000 | $80,000 | Deposits: Tax-deductible. Withdrawals: Tax-free (for first home purchase) Gains: Tax-free. | Long-term investments. First-time home buyers. |
GICs | N/A | N/A | Deposits: None. Withdrawals: None. Gains: Taxed if not held in a registered account. | No-risk investing. People who won’t need to access their funds until maturity. |
HISAs | N/A | N/A | Deposits: None. Withdrawals: None. Gains: Taxed. | Liquidity. Pure savings. |
Using gifted funds for a down payment
BACK TO TOPWho can assist with your down payment?
Basically anyone, though some lenders may prefer that gifted down payment funds come from your immediate family. Money provided by friends or extended family may require additional documentation.
What documentation is required?
A gift letter. This signed and, sometimes, notarized letter explains who is providing the funds and their relationship to you. The letter confirms that the money is not a loan, too. Borrowed down payment funds are rarely allowed.
Proof of funds. A money order receipt or bank statement identifies the source of the gifted money and that it has been deposited in your bank account by legitimate means.
If you’re self-employed and using gifted down payment funds
Using a gift as a mortgage down payment is a bit trickier when you’re self-employed. Lenders may ask self-employed borrowers to prove that they can cover 5% of the home’s price on their own. Gift funds can be added on top of this amount, but can’t comprise the entire down payment.
Frequently asked questions
Can I combine the FHSA and RRSP Home Buyers' Plan (HBP) for my down payment?
Yes. Eligible first-time homebuyers can stack both accounts for maximum purchasing power. You can withdraw up to $40,000 from an FHSA and up to $60,000 from an RRSP.
Is a down payment the same as a deposit?
No. A deposit is the money you put up during the buying process. It tells the seller that your offer is serious, and that you have the finances to afford the home. Your deposit becomes part of your down payment after your offer on a home has been accepted.
Do I have to repay money taken from my FHSA for a down payment?
No. Qualifying withdrawals from a First Home Savings Account (FHSA) are tax-free and do not need to be repaid.
Can I borrow money for a mortgage down payment in Canada?
In rare cases, yes. Some lenders offer “flex down mortgages”, where borrowers with strong credit can use lines of credit or loans to cover their down payment. You may need a mortgage broker to find a lender willing to provide a flex down arrangement.
Do I have to make a 20% down payment on a house in Canada?
In many cases, no. But putting down less than 20% makes your loan a high-ratio mortgage that requires mortgage default insurance. The insurance premium is added directly onto your mortgage balance, increasing both your loan size and monthly payment.
Does a down payment include closing costs?
No. Closing costs, such as legal fees and land transfer taxes, are not included in a down payment.
TL;DR: Down payments in Canada
A down payment starts out as a percentage of a home’s sale price.
Your down payment might be higher than the legal minimum depending on your credit profile, the mortgage stress test and the lender you borrow from.
A down payment does not include closing costs.
There are several tools available to help you save up a down payment.
DIVE EVEN DEEPER
Clay Jarvis
Clay Jarvis
Clay Jarvis
Clay Jarvis