Mortgage down payment: How much should you put down on a house?

It’s one of the toughest questions you must answer when buying a house – how much money can you put down?

A man happily unpacks boxes after moving into a new home.

Who is this for?

Anyone who needs a mortgage – in other words, anyone who isn’t buying their home outright – will need to consider the question of how much money to put down at the time of purchase. Since few people have the savings available to buy a home with cash, young, middle-aged and older Canadians all need to know exactly how much they can afford to put down on a new home.

Just to be clear, a down payment is the portion of the home’s final purchase price that you’re able to put forward at the time of purchase. Say the home you want to purchase is $400,000 – if you put down $40,000, your down payment is 10%.

How will this help me?

The good news is that you don’t need to put down a lot of money in order to get into a home. In many cases a home can be purchased with a down payment of just 5% – on a $400,000 home, that would be $20,000.

Of course, there are significant benefits to putting more money down. The higher your down payment, the less the amount of your mortgage. This could reduce each mortgage payment and may lower the amount of time required to pay off your home and the amount of interest you pay over the life of the mortgage.

What else do I need to know?

Conventional mortgage

If you’ve got enough money set aside that you can make a 20% down payment on your home, then you can acquire a conventional mortgage. The advantage of this is clear: you won’t have to pay for mortgage loan insurance, a requirement that comes with making less than a 20% down payment.

High-ratio mortgage

Also known as an insured mortgage, a high-ratio mortgage is required when the prospective homeowner doesn’t have the funds available to make a down payment of 20% or more. By law, a mortgage accounting for more than 80% of the value of the property requires the loan to be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial.

Mortgage loan insurance

Mortgage loan insurance protects the lender if you’re unable to make the required mortgage payments. The cost associated with this type of loan is typically passed on to you. In the end, this usually means higher mortgage payments for those buying the home. This coverage is provided by Canada Mortgage and Housing Corporation (CMHC) or companies such as Genworth Financial Canada.

Home inspection, closing costs, moving expenses, oh my!

When calculating how much you can put down, remember that you’ll need to pay for other critical expenses before you take possession of your new home. This can include a home inspection, legal expenses, closing costs (such as utility deposits) and moving expenses – together, these can add up to several thousand dollars or more.

You may also have to pay a deposit, which represents a portion of your down payment. The amount of this deposit varies, though it’s usually about 2-5% of the home’s purchase price – you’ll negotiate a final number when the offer on the home is formally accepted.

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