When it comes to putting a down payment on a house, there are a few things to consider. Here in Canada, the minimum down payment on a house is 5% for first $500k an additional 10% on the difference between $500k for anything greater. For example, if the purchase price of a home is $600k then the minimum down payment requirements would be $25k (first $500k) plus an additional $10k (the 10% on the difference 500k-600k).
Having said that, these minimum down payment requirements are for those applicants that can demonstrate very strong creditworthiness, job tenure, sufficient income, etc. Even if you were to meet these requirements, you may still want to consider the following:
- Short-term & long-term goals
- Personal affordability
- High ratio vs. conventional mortgage
The size of the down payment on a house should not just be determined by the minimum requirements, but also personal factors such as your affordability, goals, and whether or not you are comfortable paying the premium on the default insurance. Increasing the down payment will reduce the size of the mortgage needed to purchase a home. This in turn, will reduce your minimum monthly payments which may be more comfortable to commit to. Similarly, reviewing your goals will determine whether there is a foreseen need for available cash flow which may prevent you from putting a down payment greater than the minimum required. In addition, some home buyers are not comfortable paying thousands of dollars in default insurance which is seen on high-ratio mortgages (homes purchased with less than 20% down).
It also worth mentioning that if you have bad credit, this will almost always increase the minimum down payment requirements to 20% of the purchase price.
As you can see, putting a down payment on a house requires a little bit more thought then just what the banks allow for their minimum requirements. Personal factors should be considered by each potential home owner to ensure that the experience of owning a home is as comfortable as possible. You should always avoid burdening yourself with unmanageable conditions that may result from putting to much money into your down payment or not enough.
If you would like to know more or have any questions on the topic of putting down payment on a house, please contact us today!