April 19, 2019 SEP Dev

What is the Minimum Down Payment Needed When Buying a Home

When you need to determine your minimum down payment requirements, using a mortgage calculator is the most accurate tool. You can simply Google ‘mortgage calculator’ for convenient and easy to use online calculators (there are even mortgage apps for this!).  The mortgage calculator is not just for determining the down payment, but in addition to this there are calculators for determining your monthly mortgage payment, land transfer tax, default insurance premium, amortization, etc. It’s a great starting point to use a mortgage calculator for a general idea, but it’s really important to talk to an expert further, and here’s why:

It’s general knowledge now that the minimum down payment needed by any applicant is 5% of the purchase price. However, this (now more than ever before) is very circumstantial. Using a mortgage calculator does not factor in credit, nature of income, citizenship status, business for self-income, etc. How else would you know whether a 10% down payment is needed… or even 20%? Use a mortgage calculator to help simplify the numbers for you in the very preliminary stages of house hunting, but please don’t rely on those results to plan for your purchase.

To help illustrate how circumstantial the 5% down payment requirement is, here is a comparison as to what qualifies for a 5% down payment vs. what scenarios may require a larger down payment.

5% Down-Payment:

  • First time home buyer’s
  • Credit scores 600+ (for all applicants – exceptions may be made on case by case basis depending on institution and reason for lower credit)
  • Verifiable income – typically this means employed full time or self-employed with verifiable income through tax documentation
  • Owner occupied residence only (1-2 units max. with 1 unit occupied by owner)
  • Down payment must come from own/non-borrowed sources
  • Very much dependant on location of subject property

Popular reasons for larger down payment requirements:

  • Properties in less marketable areas
  • Rental/investment properties or vacation properties (>2 units with no owner occupied units)
  • Credit <600 (or even credit >600 but with delinquencies
  • Past bankruptcies
  • Non-verifiable nature of income (self-employed, commission, contractual, etc.)
  • > 25 year amortization
  • New to Canada applicants

You can see from reading the above that a mortgage calculator will not be able to truly determine your down payment requirements based on your specific circumstances. Nonetheless, a mortgage calculator is a good tool for quickly calculating scenarios (in the preliminary steps) to determine what you need to save for your prospective purchase. Once you have a better understanding of what you need based on the results of a mortgage calculator, speak to an expert that can effectively assess your overall borrower profile to sort out the other important factors associated in purchasing!

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