Let's start from the very beginning. What is a down payment?

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A Down Payment is a lump sum of cash that is given to a lender to show that you are seriously committed to your home purchase.  A down payment demonstrates to the bank that you have been responsible enough to save up this amount of money and that you are confident enough in the property to invest your hard-earned money into it. 

The amount of your down payment is subtracted from your purchase price to determine the full amount of money needed for your mortgage.  In other words, if you buy a home for $100,000 and put $20,000 as your down payment, you will need an $80,000 mortgage ($100,000-$20,000=$80,000).

In Canada, you may put as little as 5% of your purchase price down as your down payment, up to a purchase price of $500,000, and 10% of the remainder of the purchase price. For example, if the house you want to buy is $500,000, make sure that you have at least $25,000 in savings to use as your down payment. Please keep in mind that there are also closing costs associated with a home purchase, apart from your down payment.

There are three classifications of mortgages: High-Ratio/Insured Mortgages, Insurable Mortgages, and Uninsurable/Conventional Mortgages.

1) If you put less than 20% down, your mortgage is considered a HIGH-RATIO MORTGAGE.Please CLICK HERE to learn more about Mortgage Default Insurance.

2) If you put 20% or more down, your mortgage may be considered an INSURABLE or UNINSURABLE/CONVENTIONAL MORTGAGE.
  • Mortgage Default Insurance is NOT mandatory for Conventional Mortgages

Acceptable Sources of Down Payments

A Down Payment may come from a variety of sources, including:
  1. Savings (if it's your first home, you can use a First Home Savings Account, ie. FHSA)
  2. Home equity
  3. A gift from an immediate family member
  4. RRSPs/Investments​
The first source, savings, is pretty straight-forward.  The lender will want to see a 90 day history of your savings to ensure that the money you are using for your down payment is coming from your own resources (earnings) and that you will not have to pay anyone back. This can usually be proven through bank statements. If you are a First-Time Home Buyer, you can open up and use a First Home Savings Account (FHSA), which allows you to save to buy or build a qualifying first home tax-free! For more information, visit: 
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
If you are transferring your mortgage or refinancing, you can use the equity in your home as a down payment.
A gifted down payment must come from an immediate family member.  The bank will want to see a signed agreement between you and the family member stating that the family member is giving you the money and he/she does not expect you to pay him/her back.  The gift letter should also include the full name, contact information and relationship of the donor. 

How to use your RRSPs as a Down Payment

The Federal Government has a Home Buyer’s Plan that lets First-Time Home Buyers withdraw money from their RRSPs to use towards a down payment for a home - without being penalized. 

However, there are some restrictions:·        
  • You must be a First-Time Home Buyer.  According to the fine-print of the plan, a First-Time Home Buyer is anyone who has not owned a home that has been used as a principal residence within the last 4 years.
    • The maximum withdrawal is $60,000 per person
  • You must live in the home (ie. It must be your principal residence)
  • You must repay the money withdrawn from your RRSPs within 15 years
  • The money that you take out of your RRSPs must have been invested into your RRSPs for more than 90 days before withdrawal

Withdrawing your RRSPs is a great way to access cash that you’ve already saved up.  Just make sure you pay the money back within 15 years.

Click here for more information about the Federal Government's Home Buyers' Plan