So much of what determines the ins and outs of your mortgage, from your monthly costs to your amortization period, are tied to the scope of your down payment.
All lenders will expect you to put some cash towards your home purchase. Here are some quick facts about down payments:
- The minimum down payment needed for any real estate purchase in Canada is five percent of the purchase price.
- Down payments ranging from five to 19.99 percent of the purchase price are considered high-ratio loans, and are therefore subject to mortgage insurance, according to the Bank and Trust Company Acts.
- Mortgage insurance is calculated based on the size of your down payment.
Sources of Down Payment
Lenders will require proof of down payment prior to approving a loan. Down payments can come from three sources:
- Personal Savings: If you are using personal savings for a down payment, it is ideal to have the money in the appropriate account no less than 30 days prior to applying for a mortgage, as this will allow time for the appropriate bank statements to be processed.
- A gift from a family member: When using money given to you as a gift, you must provide a gift letter signed by the family member providing the money for down payment. In addition, the appropriate bank records to show either the deposit of the gift money into an account owned by you, or proof of the money an account owned by the family member.
- RRSP equity: The RRSP home buyers plan allows first-time home buyers to withdraw sums from a Registered Retirement Savings Plan (RRSP) to purchase or build a home without having to pay tax on the withdrawal. As of 2009, the maximum withdrawal limit is $25,000. For more information on the RRSP Home Buyers Plan, visit our HBP page.
Any combination of these three sources can be applied towards a down payment. If you are unable to raise the necessary funds, it may be possible to complete a flex-down payment. However, this is a less-than-ideal solution, as it will incur steep financing charges.
If you have any other questions regarding down payments please contact us directly.