For most first time home buyers, paying the down payment is one of the most exciting, but also nerve-wracking moments in the home buying process. As a home buyer, you’re actually taking that first major step and backing it up with your own cash. Buying a house goes from being just a plan to finally taking the leap to buy.

The Principle of Down Payment When Purchasing a Property

In the early stages of buying a property, the buyer has to render cash to secure the purchase. This is referred to as a down payment, which is 20% or more of the purchase price of the property.

In a mortgage setting, it’s the initial payment made when purchasing a house with cash or a mortgage. The initial payment is usually a percentage of the full price of the house and is deducted to reduce future payments.

Globally, the percentage of an acceptable down payment ranges between 5% to 20% of the total home value. The minimum down payment in Canada depends on the actual purchase price of the house.

The higher the value of your desired property, the higher the down payment required. For instance, If the purchase price is $500,000, the minimum down payment that may be required would be 5% or more.

A recent survey from the Canadian Real Estate Association shows that the average home price is a little over $500,000. With this price, a buyer has the option to pay a down payment of only 5% of the actual price of the home, but will also shoulder mortgage insurance.


Why Mortgage Insurance?

If your down payment is less than 20%, you’ll require mortgage insurance, also commonly referred to as Sagen (formerly known as Genworth) and CMHC insurance. Mortgage insurance in itself is only mandatory for down payments that are below 20%.

What is Maximum Affordability?

In choosing your home, a huge factor to consider is the maximum mortgage. This can steer the direction of how you shop for the types of homes and in what location. If you qualify for a higher home price, that gives you more financial flexibility to consider a home that you wouldn’t have normally set your eyes on.

Yet, this goes both ways. Knowing your maximum affordability can also help you come to terms with the fact that you might be a little over your head with the current property you’re considering. It may be way off your budget and knowing your maximum affordability will save you tons of headaches and heartaches in the future. Free yourself from buyer’s remorse or worse, spiraling down into numerous debts.

Knowing your maximum affordability aligns your budget and lets you know right off the bat if you can afford the property you’re considering. If you can’t pay the minimum required 5% down payment, you might as well abandon that property completely and go for a more reasonably priced option.

Consult with a Mortgage Broker

Buying a home is still considered by many as one of the best investments you can make. As you make payments towards your mortgage, your home equity increases. Buying a home, in general, is a huge responsibility. If you previously purchased a home in the past, you’ve already gained the experience of homeownership and what to expect. But what if you didn’t even know where to begin?

If you have the savings for the down payment of your home, well and good! That means you’re one step closer to homeownership. However, if you don’t have enough saved up yet for a down payment, it’s not the end of the road. The important thing is to have the right attitude and plan ahead.

Planning ahead includes talking to an expert to calm any fears or insecurities you may have about your level of liquidity, capacity to pay or maximizing your affordability. Let our reliable and trustworthy mortgage brokers and financial security advisors provide you with industry-expert advice to help.

What if Your Down Payment is Less Than 20%, Mortgage Broker in Greater Toronto Area, Canada