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Down Payments 101: 7 Things You Need to Know

Posted on May 05, 2017

Down Payments 101: # Things You Need to Know Keychain imageAs a new home buyer, you already know you need to come up with a down payment; but what's the best way to go about it?  For first-time buyers especially, there's a wealth of information and resources out there to help people just like you, get into the home of their dreams.

1. Minimum Down Payment

According to Canadian mortgage rules, the down payment minimum for a home is 5%. Keep in mind that this is only applicable to homes $500,000 or less. 

When you choose to make the minimum down payment you're accepting higher payments, as you'll be required to pay mortgage insurance. Mortgage insurance is added to a homebuyer's monthly payments with a down payment of less than 20%. This is to protect the lender in the event you default on your loan. While it's up to you how much you want to put down, it's recommended you make the largest down payment possible so you can reduce your monthly costs. 

Down Payments 101: # Things You Need to Know Scales image2. Saving

Saving for a down payment can take years if it's not a top priority - but there are a number of ways to expedite the process! For starters, you'll need to make a budget and stick to it so you know exactly where your money is going. Another idea would be taking public transit instead of driving. This can be huge for savings as having a car is a huge expense. Don't sell it though! You'll want to hold on to it as it’s also considered an asset, which is very helpful when you apply for your mortgage. 

3. Government Assistance

Home Buyers' Plan 

If you're a first-time homebuyer, we've got great news for you. If you have RRSP’s and haven’t owned a home in the last four years the Home Buyers' Plan can help you come up with your down payment. Both you and your partner can take up to $25,000 each out of your RRSPs - this means you could have up to $50,000 to put forward!

The First Time Home-Buyer’s Tax Credit 

The First Time Homebuyer’s Tax Credit is a government tax credit issued after you purchase your first home and can add up to $750! You'll qualify for this credit as long as you haven't owned a home in the last four years. Keep in mind, the Home Buyer’s Tax credit is non-refundable and only applicable for a qualifying home. 

5. Pre-Qualification and Pre-Approval 


This is your initial step in knowing how much you can afford for a down payment. You go to your lender and they briefly analyze your overall finances - giving you an idea of how much you'll need to save. Do this first before you start house hunting so you get a rough idea of how much you can afford and how much you'll need to budget. 


This is similar to a pre-qualification except a pre-approval will provide you with a locked in interest rate. At this point, a credit check will be done. The lender will look deeper into your finances to give you a more solid figure as to what you can afford. You can then shop for a new home with confidence, now that you know how much you have to work with.  

Down Payments 101: # Things You Need to Know Checklist image

6. Closing Costs

Generally, this is the last on people's minds when they buy a home. But you'll need to make sure you can afford both your down payment and your closing costs. Closing costs can be between 1.5% and 4% of your home's overall value, so be sure to factor them into your overall budget.

7. Think Long-Term

Ultimately, you want to think about what will be best for you in the long term. Are you able to postpone purchasing a new home until you've saved a larger down payment? Or will it be easier to pay the additional monthly mortgage insurance? Speak to your lender about which option is best for you. 

While the information above will help you along your down payment journey, you'll want to do a little extra research ahead of time. Shop around for lenders you think will give you the best rate, and talk to them about your unique financial situation. Knowing exactly what to expect will make your home purchasing plan much easier.

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Topics: mortgage & financial

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