Down Payment and Mortgages

Definition: A mortgage down payment is a specific sum of money deposited towards the purchase of a new home. It is not required in all cases, however, in the case that it is, there is a minimum amount required. This amount is relative to the value of the home you are looking to purchase.

Note: the bigger your down payment is, the more affordable your mortgage loan will be. This is because a larger down payment results in smaller overall interest payments (a smaller loan).

Down Payment Requirements For a Mortgage in Canada

Minimum Down Payment

For home buyers that are paid hourly or earn a regular salary, a minimum of 5% is required as the down payment for a home.

For self employed home buyers a minimum of 10% is required to purchase a home. More could be required if your credit is poor (learn more about your credit score). Anyone choosing to put less than 20% of the value of the property as a down payment will be required to obtain CMHC (Canada Mortgage and Housing Corporation) mortgage default insurance. This protects the lender from losses in the event that you were to default on your mortgage.

Zero Down Payment Mortgage

Credit Score Requirements

To qualify for a no down payment mortgage you need a credit score of at least 680. You are likely to have a 680 credit score if you pay credit cards and other loans on time, and there are no bill collections in your name. You will need to have three (3) years of consecutive employment in order to qualify for a zero down payment mortgage.

A no-down payment Mortgage is not for everyone. Please discuss your personal financial situation with your broker to get informed about this product – and find out if it’s right for you. A no-down payment Mortgage is also known as a cash-back Mortgage. This product can also be used to help with mortgage closing costs – or for other things around the house such as furniture, repairs or appliances. You can contact an experienced mortgage broker to determine your qualification and see if this product is available to you.

How Down Payments Affect your Mortgage and Mortgage Size

• Your down payment is used to determine the maximum price of a home you can afford
• Your down payment will have an effect on your mortgage size and mortgage payments:
  The more money you put down, the smaller your mortgage and the smaller your payments will be.
• Your down payment also determines the amount of CMHC insurance you pay:
  As stated above, a down payment of less than 20% forces a CMHC mortgage default insurance requirement. The cost of the insurance will fluctuate depending on the size of the down payment for your mortgage.

How can you finance your down payment?

Besides traditional saving methods, or the sale of personal assets, various methods of obtaining money for your down payments exist. One of these methods is the Home Buyers’ Plan (HBP). It is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a home.