What can I use for a Down Payment on a home?
Minimum Down Payments
Depending on the price point of your home the minimum down payment required will be 5-20% of the home's purchase price.
the specifics are:
- Minimum down payment is 5% of any purchase price $500 000 or less
- 10% of any additional amount over $500 000 to $999 999.99 (so not 10% on the whole purchase price but 5% for the first $500k & 10% on the amount over that)
- 20% down is required for any purchases $1 million and over
There are a few different things that can be used for down payment, I am outlining some ideas below that you may or may not have considered:
Savings: Savings accounts & TFSAs
If you have some savings put away then you can use them. Putting away $200-$400 per month can add up rather quickly. Once you are ready to buy you can use any of your savings for down payment. You can use any of this money for a down payment however it needs to meet Canadian Anti-Money Laundering Legislation requirements – In a Canadian bank account for 90 days before applying for a mortgage
Using this money is accessible through the RRSP First-time Home Buyer's Plan. The details of this program are:
• Allowed to withdraw up to $35000 (new March 19, 2019) from their RRSP to fund the down payment of a new home. Couples can access this amount each.
• Money is available tax-free but needs to be repaid within 15 years
• Your money needs to be in your RRSP at least 90 days before it is eligible for this program
Gift from family
31% of homebuyers source at least some of their down payment from a family member. It has also become common for parents to buy a home WITH their children. Typically a down payment needs to come from an arms length family member (this is usually a parent) and cannot be required to be paid back. Basically, it has to be a true gift, not a loan.
Some of our clients take advantage of what is commonly called a "zero-down payment mortgage". It is a fancy way of saying that you CAN borrow the down payment. These clients use a credit card or line of credit for the funds for their down payment. However, in this case it is important to note that this will be accounted for in the stress test so you would need to have the income to show that you can afford the home you purchase and repaying back the borrowed funds.
If you already own a home then we can often refinance it an pull out equity to use for a down payment on your next home, investment property or cottage. In some cases we may be able to strategically use specialized products such as a Home Equity Line of Credit (HELOC) or reverse mortgage for the purpose to keep the payments low to aid in qualification for the next property.
Sell your Car
This is another one people don't think about but if you live in the city and walk everywhere anyways then maybe you have a down payment just sitting in your driveway!