Your downpayment refers to the initial payment you make
when buying a property through mortgage financing. A
downpayment is always required when purchasing, because in
Canada, lenders are only allowed to lend up to 95% of the
property value, leaving you with the need to come up with at
least 5% for a downpayment.
In fact, securing mortgage financing with anything less than
20% down is only made possible through mortgage default
insurance. Canada has three default insurance providers: the
Canadian Mortgage and Housing Corporation (CMHC), Sagen
(formerly Genworth Canada), and Canada Guaranty. There is a
cost for default insurance which is usually rolled into the total
mortgage amount and is tiered depending on how much you
As your downpayment can be a significant amount of money,
you probably need a plan to put this money together. So, let’s
take a look at some of the options you have to come up with a
Money from your resources
If you’ve been saving money and have accumulated the funds
and set them aside for to use for your downpayment, you'll
need to prove a 90-day history of those funds. As far as the
lender is concerned, this is the most straightforward way to
prove a downpayment.
Any large deposits to your bank account that aren’t from
payroll will require you to prove the source of funds. For
example, if you recently sold a vehicle, you’ll need to provide
the paperwork as proof of ownership, which corresponds to
your account’s deposit. Or, if you have funds in an investment
account that you’ve transferred over, statements of that
transfer or account would suffice.
You have to prove the source of your downpayment funds to
the lender when qualifying for a mortgage to help prevent
Funds from the sale of another property
If you’ve recently sold a property and you’re using the
proceeds of that sale as the downpayment from your new
purchase, you can provide the paperwork from that
transaction to substantiate your downpayment.
RRSPs through the Home Buyer’s Plan
Okay, so let’s say you don’t have all the money set aside in your
savings, but you do have cash in your RRSP. Assuming you’re a
first-time homebuyer, you can access the funds from your
RRSP Tax-Free to use as a downpayment.
You’re able to access up to $35k individually or $70k as a
couple. The money has to be paid back over the next 15 years.
If you’d like more information on what this program looks like,
please get in touch.
Now, if you don’t have enough money in your savings, but you
have a family member who is willing to help, they can gift you
funds for your downpayment. With the increased cost of living,
making it harder to save for a downpayment, receiving a gift
from a family member is becoming increasingly commonplace.
Now, to qualify, the gift has to come from an immediate family
member who will sign a gift letter indicating there is no
schedule of repayment and that the gift doesn’t have to be
repaid. Proof that the money has been deposited into your
account is required through bank statements.
Gifted funds can make up part of or the entire amount of
downpayment. For example, if you purchase a property for
$300k and have $10k saved up, your parents can gift you the
remaining $5k to make up the total 5% downpayment.
Suppose you aren’t fortunate enough to have a family member
who can gift you a downpayment, but you have excellent credit
and a high income compared to the amount you’re looking to
borrow. In that case, you might qualify to borrow part or all of
It’s possible to borrow your downpayment as long as you
include the payments in your debt service ratios. Typically this
is 3% of the outstanding balance.
So there you have it, to qualify for a mortgage, you’ll need to
come up with a downpayment. That can be through your
resources, a property you sold, an RRSP, a gift from a family
member, borrowed funds, or a combination of all five sources.
If you’d like to discuss your downpayment or anything else
related to mortgage financing; It’s never too early to start the
conversation about getting pre-approved for a mortgage.
Please connect anytime. It would be a pleasure to work with