What is the difference between 5% and 20% down payment Canada? In my last blog post, 5 Steps to Mortgage Pre-Approval , Step 3 highlighted the importance of understanding down payment options in Canada. Here we are going to dive a bit deeper into what to consider when saving for your down payment.
A common misconception with Canadian mortgage down payments is that you need to save a minimum of 20% of the purchase price. This is not always true. You can get into the market with as little as 5% down, depending on the price of the home. Especially if you are new to buying a house, there are down payment options for first time buyers Canada that I can help you explore.
So, Here’s How You Can Buy with Less Than 20% Down:
If your home costs $500,000 or less, the minimum down payment is just 5%. For homes between $500,000 and $999,999, you’ll need 5% on the first $500,000 and 10% on the rest.
So, for example:
- If you buy a $600,000 home, your minimum down payment would be:
- 5% of $500,000 = $25,000
- 10% of $100,000 = $10,000
Total: $35,000 down
That’s still a big number, but a lot more achievable than 20% ($120,000 in this case!). Check out the Home Purchase Calculator on my app to play around with scenarios that are more specific to you.
But…What Happens if you Put Less than 20% Down?
In other words, “what’s the catch?” Down payments that are less than 20% must be covered by mortgage insurance in Canada through the Canada Mortgage and Housing Corporation (CMHC), or a similar insurer. This mortgage default insurance is a premium added to your mortgage that protects the lender (not you) in case you default. You don’t pay for this cost up front. Rather, it is rolled into your total mortgage amount.
The CMHC premium depends on your down payment size:
- 5% down = 4% premium
- 10% down = 3.1% premium
- 15% down = 2.8% premium
Though you’ll have slightly higher monthly payments due to the premium, you do get into the market sooner and can start building equity instead of waiting years to save up 20%. Check out this link for more information on CMHC.
Who Qualifies for a Low Down Payment Mortgage?
To qualify, you’ll need to meet a few basic guidelines:
- Stable income and employment
- Strong Credit
- A maximum purchase price under $1.5 million
If you check those boxes, you’re likely in good shape for less than 20% down on your mortgage.
Let’s Explore Your Options!
No more wondering, “Can I buy a house with 5% down?” A mortgage preapproval will help clarify your options and budget. On our call we will walk through the pros and cons of less than 20% down for your specific situation and make personalized decisions based on your budget and home goals.
You can connect with me here and I’ll help you understand what’s possible even if you don’t have 20% saved.