Down Payment FAQ’s

What you need for your minimum down payment is a very common question in today’s market so let’s break that down. The Minimum Down Payment Requirement on Insured Mortgages:

• 5% for the portion of the purchase price up to $500,000.
• 10% for the portion between $500,000 and $1,500,000 (This means that buyers will be eligible to purchase an owner occupied home upwards of $1,500,000 with a minimum down payment of $125,000).
• 20% is required for purchase above $1,500,000.

20% will also be required when you:

• Purchase a rental property
• Take a 30-year amortization as a non first time home buyer
• Refinance your mortgage
• Purchase over $1,500,000
• Utilize alternative financing options

Examples of some down payment sources may include:

• Personal savings
• A gift from an immediate family member
• RRSP’s or TFSA’s
• Investment accounts
• Borrowed money in some cases

Let’s break down a few common sources of down payment.

• Savings – This strategy often takes the longest to accumulate.
• Gift – When buying an owner occupied home, you can secure financing with a gift from an immediate family member
• RRSP’s / TFSA’s – These tax-sheltered accounts are among some of the most popular accounts used as down payment sources today.
• Investment Accounts – Like RRSP’s & TFSA’s, additional investment accounts are great options to utilize for your next down payment.
• HELOC – A home equity line of credit is a common source that many homeowners utilize to invest in real estate. In this case, the interest paid is tax deductible.
• Equity – When done right, homeowners can leverage their built-up equity for the purpose of buying assets like real estate.
• Joint Venture – A JV partnership works great when one party has the down payment, and the other party has the credit and income to help qualify.
• Turn your primary into the rental - This strategy works well for those homeowners who want a rental property but have less than 20% down. Remember an owner-occupied purchase only requires 5% down.

• A purchase deposit demonstrates the buyer’s good faith to the seller to close on their purchase. This deposit is held in trust & then credited back to the buyer at completion as part of their total down payment.
• For example, if your total down payment is $25,000 & your deposit is $10,000, you will only owe the difference of $15,000 at time of completion. Alternatively, if your down payment is $25,000 & you agree to a $30,000 deposit, you will be reimbursed the $5,000 at completion.
• Typically, the deposit is 5%, sometimes 10% of the purchase price.
• Is this deposit due right away? No, not until you agree to move forward with your sale. In other words, your deposit is due once you complete your due diligence period (also known as your subject removal period), meaning you’ve secured firm mortgage financing & completed your home inspection.

• This type of financing comes into play when you have purchased a home, but your deposit is tied up in the sale of your current home.
• A deposit is different from a down payment and demonstrates the buyer’s good faith to close on their purchase agreement. If you find yourself needing these temporary funds, there are options available.
• How it Works:
  • A firm sale contract for your current home must be provided.
  • The funds leant are secured against your current home.
  • The amount borrowed for your deposit on your new home must be paid back in full once the sale of your current home completes.
• Keep in mind if the completion date of your current home falls after completion of your newly purchased home, you may then require bridge financing for your down payment as well.
• It’s that easy!

• No
• Subject to qualifying, anyone can qualify at 5% down
• Property must be an owner occupied or a 2nd home

• Let’s take a $500,000 home with the minimum 5% down ($25,000)
• After subtracting loan insurance of $19,000, your home will appreciate a very modest $52,000 & have a balance of $414,000 at the end of your term.
• That’s a total of $139,000 in YOUR POCKET after only 5 years!
• Know your options – Remember, its time in the market that builds wealth in real estate!

• This rule was implemented as the new anti-money laundering act in 2018
• It implies that all banks will require proof of down payment via a 90-day bank statement history on any purchase.
• This means all transactions will be reviewed and a paper trail of your down payment will be required.

• Not necessarily
• With as little as 5% down, you will see the best available rate, but you will be required to pay mortgage loan insurance at 2.5% - 4%
• With 20% down, your rate will be slightly higher with no insurance required

A conventional mortgage refers to any mortgage with a maximum loan-to-value of 80%. In other words, a conventional mortgage refers to any mortgage with a down payment equal to or greater than 20% of the purchase price and does not require mortgage loan insurance.

Insured

• Refers to when your down payment is less than 20%.
• The property purchase price must be less than $1,000,000.
• Must qualify at a 25-year amortization.
• Owner occupied or 2nd home purchases only.
• Can’t be a rental property.
• Important to note on all insured mortgages with less than 20%, mortgage loan insurance is required.
• Because your mortgage loan insurance premium is protecting the lender, you will qualify for the markets lowest interest rate.

Insurable

• Your down payment will be greater than 20%.
• The property purchase price must be less than $1,000,000.
• Can’t be a rental property.
• What makes an Insured mortgage different than an insurable mortgage is that you are now putting 20% or more down. In this case, the lender will now pay for the mortgage loan insurance. In this case, your interest rate will be slightly higher than an insured product, but lower than an uninsured mortgage.

Uninsured

• Your down payment will be greater than 20%.
• The property purchase price can be over $1,000,000.
• You can extend your 25-year amortization to 30-years.
• Can be a rental property.
• Because the lender pays for private mortgage loan insurance, uninsured mortgages result in a slightly higher rate.

Mortgage loan insurance, also known as mortgage default insurance, is an insurance premium paid by the borrower, to in which protects the lender for in the event that the borrower defaults on their mortgage obligations.

Mortgage loan insurance is provided by one of three institutes, CMHC, Canada Guaranty, or Sagen. Mortgage loan insurance is implemented on any mortgage that has a down payment of less than 20% of the purchase price of a home. The insurance premiums range from 0.50% to 7.0% and can be added directly onto the mortgage amount.

• The main advantage to your home equity line of credit is ongoing access you have to your equity at a low cost of borrowing.
• Rates are typically set at prime to prime or prime + 0.50%
• Because your home equity is secured against your largest asset - your home, you will be able to borrow significantly more than a standard line of credit would allow.
• You can access your home equity line of credit for the purpose of additional investments such as purchasing a rental property.
• The monthly interest that you are charge when advancing funds from your HELOC for the purpose of any investment is tax deductible.
• Unlike a typical mortgage, a home equity line of credit allows you to make interest only payments, otherwise giving you the option of a lower-than-normal monthly payment. You can begin making principal and interest payments at any time.
• Your HELOC also gives you the maximum flexibility to use and pay off as you see fit. There are no restrictions to how fast or slow you can pay off your loan if you are making the minimum monthly interest payments.
• Many HELOC products when combined with your mortgage are re-advanceable. Thus, meaning as you pay down your mortgage, the limit of your HELOC will continue to grow. Your home equity line of credit is a revolving source of funds that you can access at any time.

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