Down payment FAQ
FAQ: Down Payments
How much money do I need for a down payment?
- The down payment is the portion of the purchase price that is paid by you and is due on your closing date.
- In Canada, your down payment can be as low as 5% of the purchase price of a home
- If your down payment is less than 20% of the purchase price, the mortgage is considered ‘high ratio’ and will need to be insured by CMHC or Genworth. Mortgage insurance is an additional cost that is usually added to your mortgage balance.
- A 20% down payment is considered ‘conventional’ and the mortgage doesn’t have to be insured.
- Check out my calculator to see what you can afford and how the amount of your down payment will affect your mortgage: https://www.kevinbell.ca/
Where can I get the money for my down payment?
- Personal savings
- TFSA – Tax Free Savings Account
- Sale of an existing property
- Lottery winnings
- An inheritance
- A gift from a close family member
- Or a combination of some or all of these, to name a few
*The deposit you gave when you originally put the offer on the property becomes part of the down payment on closing
Are there any benefits for First Time Home Buyers?
- First Time Home Buyers can each take up to $25,000 from their RRSP towards the purchase of a house
- First Time Home Buyers save on the Land Transfer Taxes in many provinces
What are the benefits of putting a 20% down payment?
- If you put down a 20%+ down payment, you can avoid mortgage insurance (CMHC and Genworth) and your mortgage and your payments will be lower
- Since your mortgage is not insured you can use a 30 year amortization and also avoid the “stress test”.
- To purchase an investment property or property worth more than $1M, you are required to put down at least 20%.
Why am I asked to provide so many documents?
- Anti-Money Laundering (AML) requirements is the main reason – to combat money laundering, lenders must be rigorous in their compliance with the laws and regulations.
- The lender must be able to see a ‘paper trail’ for the deposit and down payment
- This ‘paper trail’ is usually 90 days history of bank statements showing the accumulation of the deposit and the down payment
What is money laundering and what does it have to do with me?
- Money laundering is the process used to disguise the source of money or assets derived from criminal activity
- Whether you’re a first-time home buyer or a seasoned homeowner purchasing a new home or investment property, lenders will need to confirm the source of your down payment to satisfy the AML rules and regulations
- It has nothing to do with you – it is the lender’s who need to comply with the AML regulations to operate Canada
How can I prepare for purchasing a property and creating my down payment?
- Visit https://www.kevinbell.ca/ to start – use the calculator to see what you can afford and how much or how little you need as a down payment
- You can apply for an online pre-approval to know what can be approved when you put an offer on a property and protect yourself from rates increasing for 120 days
- Talk to me about where your down payment is coming from and documentation requirements
What if I am refinancing my mortgage? Do I need a down payment for that?
- Refinancing does not require any down payment from any source other than the equity in your property
- As an example, if your property is valued at $500,000 and the mortgage on that property is $200,000, the equity you have is $300,000
- When refinancing, the down payment is 20% of the value (in this example it would be $100,000 – leaving you with $200,000 in available equity)
- You may access up to 80% equity in your property for other purposes, including to pay down debt, invest, or even purchase another property
It is best practice to have your down payment in your account at least 15 business days before the closing date. If your bank statements show any large deposits, further documentation may be required. This all takes time for the lenders to review.
Contact me at Kevin@kevinbell.ca or call 416-769-1440 – I can help you get the mortgage you want