Downpayment 101

What is my minimum down payment, and how does it affect my application?

There are 3 types of down payment scenarios:

1. If your down payment is between 5% and 19.99% of the purchase price, your mortgage is considered a high-ratio (or insured) mortgage. This means you're borrowing more than 80% of the home's value.

   Because of this, lenders require you to purchase mortgage default insurance. This insurance protects the lender in case you're ever unable to make your mortgage payments.

   The cost of the insurance is added to your mortgage — you don’t have to pay it upfront. It's provided through one of three insurers: CMHC, Sagen, or Canada Guaranty.

2. If you have a down payment of 20% or more of the purchase price, your mortgage is considered a conventional mortgage. This means you don’t need to pay for mortgage default insurance, because the loan amount is 80% or less of the home’s value.

3. If you don’t have the full 5% down payment saved, a "flex-down mortgage" might be an option. This allows you to borrow the 5% down payment from an unsecured source, like a line of credit — as long as you have strong, stable income and can qualify for the payments.

   These types of mortgages are less common today, but for the right borrower, they can help make homeownership possible when saving a down payment is the biggest hurdle.

Where can my down payment come from?

• Cash Down Payments (savings, chequing, and/or investments): If you're using cash from your existing account(s) for your down payment, we'll need to verify where it comes from with a 90-day history from the account(s) the funds are coming from.

  Your statement(s) must include and show all of the following details:
  - Your name
  - Your account number
  - The full 90-day transaction history

  This helps confirm that the money is yours and has been in your account for at least 90 days. Any large or irregular transfers into your account within the 90-days will need to be verified with additional corresponding paperwork to show the source of funds.

• Gifted Down Payment (from an immediate family member): If your down payment is being gifted by an immediate family member, it must be a true gift — not a loan. That means there can’t be any expectation that you’ll pay the money back.

  We’ll need a simple gift letter, which I’ll provide, that needs to be signed by both all parties to confirm the money is a gift with no repayment required.

• Using RRSPs for Your Down Payment: The Government of Canada has a great program that lets you use up to $60,000 from your RRSPs tax-free for your down payment — as long as you’re a first-time home buyer (or haven’t owned a home in the last 4 years). You then have 15 years to pay it back without any penalties.

  To use this program, you’ll just need to provide:
  - A copy of the RRSP withdrawal form from your bank
  - Your most recent 90-days of RRSP statements

  Not a first-time buyer?
  You can still use RRSP funds for your down payment, but your institution will withhold 30% for taxes when you withdraw the money. It’s not as ideal, but it’s still an option.

• Borrowing from an Existing Property: If you own another property with enough available equity, you may be able to borrow against it to use as your down payment in the form of a mortgage or a home equity line of credit (HELOC).

  To confirm this, we’ll need a recent mortgage statement showing how much equity you have available.

• Using Sale Proceeds for Your Down Payment: If you're selling your current home and using the proceeds for your next down payment, I will need a few things:
  - A firm sale agreement
  - Your current mortgage statement
  - Proof the sale proceeds were deposited into your account (if your sale has already closed)

  If your current home sells after you buy your new one, that’s totally fine — you may just need bridge financing to cover the gap. Don’t worry — I have solutions for that too!

• Unsecured Lines of Credit: Some borrowers with strong income can borrow their 5% down payment using an unsecured line of credit (a personal loan that doesn’t require collateral).

  If you’re thinking about this option, reach out to us! We can run the numbers and see what you might qualify for.

  This approach isn’t for everyone, but with rising rents and lower mortgage rates, many people are choosing to buy instead of rent by using this strategy.