Making a down payment on a home: tips and advice

The down payment is the amount you pay up front when you buy a home. You can’t get a mortgage, which covers the rest of the purchase, without making a down payment.

Generally speaking, the down payment is based on the home’s purchase price or property value—whichever is lower. The minimum down payment is 5% of the property value, but you should aim to put down 20% if you can. With a larger down payment, your mortgage payments will be lower and you’ll pay less interest.

Keep in mind that if the property value is lower than the purchase price, you may need a larger down payment to cover the difference between the maximum amount you can finance and your acquisition cost. You’ll also need to take out mortgage insurance if your down payment is less than 20%.^†

If your down payment is less than 20%

Even if you don’t have 20% of the purchase price for your down payment, you can still get a mortgage if you take out mortgage insurance.^† Mortgage insurance makes homeownership more accessible for people with a smaller down payment. That said, it comes with additional fees like insurance premiums, which can be added to your mortgage or paid separately, depending on your preferences and applicable payment terms.

If the property purchase price* is $500,000 or less, you’ll need a down payment of at least 5%

For example, if you want to buy a property that costs* $350,000, you’ll need to put down $17,500, which is 5% of the price.^† If you want to put down 20%, your down payment will be $70,000.

If the price* of the property is more than $500,000, you’ll need to put down more than 5%.

If you want to buy a property that costs* $650,000, here’s how to figure out your minimum down payment:²

• 5% on the first $500,000, which is $25,000^†
• 10% on the portion above $500,000, or $15,000 of the remaining $150,000^†

That means you’ll need at least $40,000 for your down payment.

If you want to avoid the mortgage insurance requirement, you’ll need to put down 20%, or $130,000. By reducing the overall amount you’ll need to finance, a bigger down payment minimizes the total cost of your mortgage.

Generally, you can expect closing costs to add up to between 3% and 5% of the purchase price of your new home.  You'll have to show that you have money set aside for this when you apply for a mortgage. If you don't, it can be rolled into your mortgage. Closing costs cover basic expenses tied to purchasing a home, such as:

Inspection and appraisal fees

• Legal fees
• The land transfer tax, known in Quebec as the "welcome tax"
• Home insurance
• Hook-up fees (electricity, internet, etc.)
• Home and yard maintenance
• Moving costs
• Allocation and account adjustment fees

This tool can help you calculate potential closing costs. 

Saving up for a down payment is no small feat. Luckily, there are a number of government programs and tax-sheltered accounts you can use to save up for a down payment more quickly. The government also has financial incentives you might be able to use, and depending on your situation, you might be able to ask your loved ones to help. All this to say, there are a number of strategies available. 

There are a number of registered plans you can use to save up for a down payment on a home. Talk to your financial advisor about different strategies and whether they’re right for you.

• The first home savings account (FHSA) allows you to save up for a down payment in a tax-sheltered account. You can then use these savings to buy your first qualifying home under certain terms and conditions. For example, FHSA contributions are tax-deductible, meaning they can be used to reduce your taxable income.
• Withdrawals are tax-free under certain conditions, if used to buy a qualifying home.
• Your FHSA contribution room increases by $8,000 a year, up to a maximum lifetime limit of $40,000. 

A registered retirement savings plan (RRSP) can help bring you closer to homeownership. As long as you meet certain conditions at the time of withdrawal, the Home Buyers’ Plan (HBP) lets you withdraw up to $60,000 from your RRSP tax-free in the year you buy or build your first home. If you have a partner and each of you withdraws the maximum allowable amount from your RRSPs, you could withdraw up to $120,000. In addition, RRSP contributions help reduce your taxable income. Depending on your situation and applicable conditions, you may also be able to take out an RRSP loan to increase your contributions. Talk to your financial advisor to learn more about strategies you might be able to use.

Good to know: There are a number of government programs in place to help Canadians buy their first home.

• The following mechanisms can give you a helping hand:
• The federal tax credit for home buyers
• The Quebec government’s Home Buyer’s Tax Credit
• Land transfer tax refunds for first-time home buyers in Ontario
• The GST/HST/QST rebate for owners of new or substantially renovated housing
• Municipal financial assistance programs created to attract new homeowners to the area.

Making a detailed budget that lists your income, expenses and debts is a good place to start. This will help you determine how big a mortgage you can afford. You can use an online tool to help. This information will help your advisor get an accurate picture of your financial situation and suggest an appropriate amount to borrow.  

Remember, no matter what your situation is, and no matter what you’re looking to achieve, it’s never too early to start saving for a down payment.

There are many ways to help make your goal of becoming a homeowner a reality. For example, you can buy property with family or friends, rent out a part of your future residence or choose to live in a multigenerational home. For example, you can buy property with family or friends, rent out a part of your future residence or even choose to live in a multigenerational home. No matter what, you can always reach out to a financial advisor for guidance and support.

Buying a home is a big decision, so it’s important to do things right.