Minimum Down Payment Rules in Canada
Canada’s mortgage system has tiered rules for minimum down payments. These rules impact your loan eligibility, insurance costs, and overall affordability.
Introduction
Your down payment is more than just a number, it’s the foundation of your mortgage. In Canada, the required amount depends on the home’s purchase price and whether you’re insurable. Understanding these rules helps you plan your purchase realistically and avoid delays or disqualification.
For homes priced at $500,000 or less, the minimum down payment is 5%:
This threshold is designed to make homeownership more accessible to first-time buyers. For example, a $400,000 home requires a minimum down payment of $20,000. However, buyers should be prepared for additional closing costs, as the 5% only covers the mortgage qualification, not the full amount needed to close the deal.
For homes priced between $500,001 and $999,999, the down payment is tiered:
You must contribute 5% on the first $500,000 and 10% on the remaining amount. If you’re buying a $700,000 home, the required minimum would be $45,000. This structure ensures that buyers taking on larger mortgages contribute more equity, reducing risk to lenders and insurers.
Homes priced at $1 million or more require at least 20% down—and are not insurable:
Once the purchase price hits seven figures, CMHC and other insurers step back. This means you must go conventional, which changes the underwriting approach and can affect the types of lenders you qualify with. For example, a $1.1M home requires at least $220,000 upfront, not including closing costs.
Any down payment below 20% triggers mandatory default insurance:
The cost of mortgage insurance is added to your loan and varies between 2.8% to 4% of the mortgage amount, depending on how close you are to the 5% minimum. While it enables buyers to enter the market sooner, it also increases the size of the loan being repaid. Understanding how this premium is calculated—and its impact on your monthly payment—is critical for accurate budgeting.
Gifted funds and RRSP withdrawals can be used toward the down payment if properly documented:
Many first-time buyers receive help from family in the form of a gifted down payment. These funds must be non-repayable and supported by a signed gift letter. RRSP withdrawals under the Home Buyers’ Plan are another powerful tool, but timing and eligibility are essential to make them work seamlessly.
Conclusion
Minimum down payment rules in Canada are strict but structured to support responsible borrowing. Whether you’re just starting to save or approaching your purchase, knowing exactly how much you’ll need, and where it can come from, puts you in control of the process.
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The First-Time Home Buyer Incentive: What You Need to Know
The FTHBI offers 5% or 10% toward your down payment through a shared equity arrangement with the federal government. It can lower monthly payments but comes with long-term considerations.
Introduction
The First-Time Home Buyer Incentive (FTHBI) was launched to make homeownership more accessible by reducing your monthly mortgage payment. While the program can be helpful, it also means giving up a percentage of your home’s future value. Understanding the full implications is essential before opting in.
The incentive contributes 5% for existing homes or 10% for newly built ones:
This contribution comes in the form of a shared equity mortgage with the government. It’s not a loan in the traditional sense, it doesn’t require monthly payments or interest. Instead, the government becomes a silent partner in your home ownership, holding a proportional stake in the property’s value.
You must repay the same percentage, not the same amount, within 25 years or when you sell:
If your property appreciates in value, the amount you owe back increases. For example, if the government gave you 10% on a $400,000 new build, and the home is later worth $600,000, you would repay $60,000, not $40,000. Conversely, if the home loses value, you repay less. This risk-sharing model can work for or against you, depending on the market.
Eligibility is based on income and borrowing thresholds:
To qualify, your household income must be under $120,000 (or $150,000 in select high-priced areas). Additionally, your total borrowing, including the incentive, can’t exceed 4.5 times your qualifying income. These limits effectively cap the maximum purchase price and may restrict buyers in competitive markets.
The incentive cannot be used toward closing costs or furniture:
The funds are restricted to supplementing your down payment only. This means you’ll still need to plan for legal fees, land transfer taxes, home inspections, and other upfront expenses independently.
There is no monthly repayment, but your long-term equity is affected:
Because the government holds a stake in your property’s future value, your potential gains are reduced when it’s time to sell. For some, the monthly savings are worth the trade-off; for others, holding onto full ownership is more important.
Conclusion
The First-Time Home Buyer Incentive can help ease monthly payments in the short term, but it’s a long-term commitment with strings attached. It’s essential to weigh the upfront relief against the future cost to your equity.
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Using Your RRSP for a Down Payment: The Home Buyers’ Plan
The Home Buyers’ Plan allows you to borrow up to $35,000 from your RRSP, tax-free, to buy your first home. It’s a flexible and powerful tool, but not without repayment obligations.
Introduction
The HBP lets first-time buyers tap into their own RRSP savings to fund a home purchase without triggering immediate taxes. It’s a loan to yourself, interest-free. But like any loan, it must be repaid on schedule or you’ll face tax consequences.
You can withdraw up to $35,000, or $70,000 as a couple, without tax:
This withdrawal must be reported to the CRA but is not counted as taxable income, provided it is repaid over the next 15 years. For many first-time buyers, this can mean the difference between buying now or waiting years to save.
Repayments start two years after withdrawal and are spread over 15 years:
Each year, you must repay at least 1/15 of the amount withdrawn. If you miss a repayment, the amount is added to your taxable income for that year. This creates both flexibility and risk—proper budgeting is key to avoiding an unexpected tax bill.
To qualify, you must be a first-time buyer or haven’t owned in the past 4 years:
The CRA defines first-time buyer status loosely. Even those who have previously owned may qualify if they’ve been out of the market due to divorce or financial hardship. It’s a second chance for many Canadians.
Your RRSP funds must be in the account for at least 90 days before withdrawal:
This rule catches many buyers off guard. RRSP contributions made just before withdrawal won’t be eligible. Timing your deposits and planning withdrawals in advance is essential.
Funds must be withdrawn before your home closes:
If you miss the window to withdraw before closing, you lose eligibility. Coordination between your mortgage broker, lawyer, and financial advisor is critical to avoid delays or disqualification.
Conclusion
The Home Buyers’ Plan can be a powerful tool to increase your down payment, but it requires careful planning and disciplined repayment. Done right, it lets you invest in your future using your own savings, without giving up long-term equity.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
The FHSA: A Powerful New Way to Save for Your First Home
The First Home Savings Account (FHSA) combines the tax perks of an RRSP and a TFSA. It’s built exclusively for first-time buyers and offers unmatched long-term advantages.
Introduction
Launched in 2023, the FHSA is a tax-sheltered account designed specifically to help Canadians save for a down payment. It allows you to deduct contributions and withdraw them tax-free for a home purchase. It’s the most generous savings tool first-time buyers have ever had.
Contributions are tax-deductible, just like an RRSP:
This means you reduce your taxable income by the amount you contribute. An $8,000 contribution could reduce your tax bill by $2,000 or more, depending on your income bracket. It’s immediate, tangible help for those trying to build a down payment.
Withdrawals are completely tax-free when used to buy your first home:
Unlike an RRSP withdrawal under the Home Buyers’ Plan, you never need to repay an FHSA withdrawal. If you use the funds toward a qualifying home purchase, you keep 100% of your contributions and gains, tax-free.
You can contribute up to $8,000 per year to a lifetime limit of $40,000:
Unused room rolls over, so you can catch up in future years. If you open the account today and don’t contribute for a year, you can put in $16,000 the following year. This flexibility allows you to align contributions with your budget and income fluctuations.
You must be a first-time buyer and at least 18 years old to qualify:
The rules define a first-time buyer as someone who hasn’t lived in a home they owned in the past four years. This allows returning renters or recent divorcees to use the plan, even if they’ve owned before.
Unused FHSA funds can be transferred into your RRSP without penalty:
If you decide not to buy a home, you don’t lose the benefit. The funds can move into your RRSP without affecting your contribution room, keeping your savings tax-sheltered until retirement.
Conclusion
The FHSA is an unparalleled opportunity for first-time buyers to save more, pay less tax, and grow their down payment faster. For anyone even thinking about buying in the next few years, this account should be a priority.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
Understanding Land Transfer Taxes and Rebates in Canada
Land transfer taxes (LTTs) are a significant closing cost in most provinces. Fortunately, many offer rebates to offset the cost for first-time home buyers.
Introduction
When you buy a home in Canada, you may owe a land transfer tax; sometimes provincial, sometimes municipal, and sometimes both. These taxes are due at closing and can’t be rolled into your mortgage. Understanding the amounts and available rebates helps you budget accurately.
Ontario, British Columbia, and Quebec charge tiered land transfer taxes:
These taxes increase with the price of the home. For instance, in Ontario, a $600,000 home results in roughly $8,475 in LTT. Quebec and BC use similar tiered systems. This is often one of the largest non-mortgage expenses and must be paid upfront at closing.
Toronto homebuyers face a double tax, both provincial and municipal:
In addition to the Ontario LTT, Toronto charges its own Municipal Land Transfer Tax (MLTT). On a $700,000 home, you could pay over $20,000 in combined taxes without a rebate. It’s a major financial factor unique to the city and often overlooked in initial budgeting.
First-time buyers in Ontario can receive up to $4,000 in rebates:
This rebate fully offsets the provincial LTT on homes up to $368,000 and partially offsets higher-priced homes. To qualify, at least one buyer must be a first-time purchaser, and the home must be intended as a primary residence. Similar programs exist in BC and PEI.
Not all provinces charge land transfer tax:
Alberta and Saskatchewan, for example, charge modest flat fees for property registration rather than percentage-based LTT. This creates lower closing costs and can be a deciding factor for buyers relocating or choosing between provinces.
Rebates must be applied for through your lawyer at closing:
These aren’t automatically applied, you must meet eligibility requirements and submit the proper paperwork. A good lawyer or mortgage professional ensures this is handled correctly, but it’s wise to double-check your rebate is in place before signing.
Conclusion
Land transfer taxes are a critical component of your closing costs, and the rules vary dramatically by region. Factoring them into your budget early, and knowing your rebate eligibility, will keep your home purchase on track.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
Closing Costs Explained: Legal Fees, Inspections, and Insurance
Closing costs are essential expenses beyond your down payment. They cover legal work, inspections, title insurance, and more, often totaling 1.5% to 4% of the purchase price.
Introduction
Many buyers focus only on saving for their down payment, but forget to account for closing costs. These mandatory expenses can add thousands to your purchase budget. Understanding each component ensures you’re financially prepared for closing day.
Legal fees are required to finalize your mortgage and property transfer:
These fees typically range from $1,200 to $2,000, depending on complexity and province. They cover title searches, land registration, document preparation, and communication with your lender. Without a lawyer or notary, your transaction can’t legally close in Canada.
Home inspections are highly recommended, especially for older homes:
Costing between $350 to $700, inspections reveal issues with structure, plumbing, electrical systems, and more. A good inspection can save you from buying a home with hidden problems, or help you negotiate repairs before closing.
Title insurance protects against legal issues like fraud or zoning defects:
Most lenders require it, and it’s a one-time premium paid at closing, usually around $250 to $400. It covers problems that may not show up in a title search and gives peace of mind that you truly own your home.
Property tax and utility adjustments are common and often unexpected:
You may have to reimburse the seller for prepaid property taxes, utilities, or condo fees. These “adjustments” vary by transaction and can range from a few hundred to a few thousand dollars.
Lenders often require mortgage default insurance and home/fire insurance:
Mortgage insurance premiums (if applicable) are rolled into your mortgage, but fire insurance must be active on closing day. Most policies cost $500 to $1,000 annually, and your lawyer will need a binder confirming the policy before disbursement.
Conclusion
Closing costs are unavoidable and often misunderstood. Budgeting for them properly ensures you don’t face last-minute surprises, and helps you take possession smoothly and on time.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
Understanding Mortgage Default Insurance in Canada
Mortgage default insurance protects lenders, not borrowers, when down payments are under 20%. It’s mandatory in many cases and paid as a premium added to your mortgage.
Introduction
In Canada, if you put down less than 20%, your mortgage must be insured through CMHC, Sagen, or Canada Guaranty. This coverage protects lenders from borrower default. This system is what allows many Canadians to buy with as little as 5% down.
CMHC, Sagen, and Canada Guaranty are the three approved insurers:
While CMHC is the most recognized (as a Crown corporation), all three insurers provide the same basic coverage with similar guidelines. Your lender selects the insurer, not you, and the choice won’t usually impact your experience or premiums.
Mortgage insurance is required when your down payment is under 20%:
It enables higher-risk borrowers to qualify with smaller down payments. Without this insurance, lenders would be forced to require 20% minimum, locking many first-time buyers out of the market entirely.
The insurance premium is based on the loan-to-value (LTV) ratio:
Premiums typically range from 2.8% to 4% of the mortgage amount. The higher your LTV (i.e., the smaller your down payment), the higher your premium. For example, on a $450,000 mortgage at 95% LTV, the premium could exceed $16,000.
Premiums are usually added to your mortgage, not paid upfront:
Instead of paying the premium out-of-pocket, it’s rolled into your total mortgage balance and repaid over time. This increases your monthly payment slightly but avoids the need for additional cash on closing.
Insured mortgages come with tighter approval rules and property limits:
CMHC-insured homes must be under $1 million and owner-occupied. Rental properties, unique homes, or those in poor condition may not qualify. This makes insured financing more restrictive, even as it enables lower down payments.
Conclusion
Mortgage default insurance plays a critical role in making homeownership possible for many Canadians. While it adds cost, it also opens the door to entry-level buyers who haven’t yet saved a full 20% down.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
How Much Mortgage Can I Afford? Understanding GDS and TDS Ratios
Your affordability is determined by two core ratios, Gross Debt Service (GDS) and Total Debt Service (TDS). These ratios cap how much of your income can go toward housing and total debts.
Introduction
Lenders don’t guess when deciding how much you can borrow. They use established ratios, GDS and TDS, to assess whether your income can support the mortgage. These calculations are critical to understanding your real affordability.
GDS measures the percentage of income going to housing costs:
It includes mortgage payments, property taxes, heating, and 50% of condo fees. Most lenders require your GDS to stay below 35%, though some allow up to 39% with strong credit. For example, if you earn $100,000, your housing costs should not exceed $2,917 to $3,250/month.
TDS includes all monthly debt obligations, not just housing:
In addition to GDS, TDS factors in car loans, student loans, credit cards, and lines of credit. Most lenders cap TDS at 42% to 44%, depending on your credit score. This broader view prevents borrowers from overextending with non-housing debts.
Stress testing affects your maximum mortgage size:
Even if you secure a 5% rate, lenders must test your application against a higher benchmark, currently around 5.25% or your rate plus 2%, whichever is higher. This artificially lowers the mortgage amount you qualify for, creating a financial buffer.
Net income matters more than gross when budgeting:
While GDS/TDS are based on gross income, your real-world affordability is based on what’s left after taxes, RRSP contributions, and household expenses. Buyers often overestimate what they can truly afford each month.
Affordability is also shaped by property type and location:
Condo fees, property taxes, and heating costs can vary dramatically. A downtown condo with $800/month fees may disqualify you, while a house with no condo fees and lower taxes may fit your budget better, even if the purchase price is higher.
Conclusion
GDS and TDS ratios provide a disciplined framework for mortgage qualification. Knowing your numbers helps you shop within budget and avoid future financial strain.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
Pre-Qualification vs. Pre-Approval: What’s the Difference?
Pre-qualification is a basic estimate, while pre-approval involves full underwriting. Only one actually holds weight with sellers and lenders.
Introduction
Many buyers confuse pre-qualification with pre-approval. While they sound similar, they’re not. Knowing the difference can make or break your offer in a competitive market.
Pre-qualification is a quick estimate based on self-reported numbers:
It doesn’t include document verification or a credit check. It’s useful for early-stage planning but not reliable for house hunting. Think of it as a financial sketch, not a blueprint.
Pre-approval is a formal assessment with credit and document review:
A lender evaluates your income, debts, credit history, and down payment source. You’ll receive a written confirmation of how much you can borrow, usually with a rate hold. This is what realtors and sellers expect to see before accepting an offer.
Pre-approvals usually include a rate hold of up to 120 days:
This protects you if rates rise while you shop. Even if your rate expires, you can often renew it with updated documents, giving you flexibility without reapplying from scratch.
Only a pre-approval gives you credibility with sellers:
In hot markets, buyers with pre-approvals are more competitive. A pre-qualification won’t cut it in a bidding war, it’s not a real commitment from a lender.
Pre-approval doesn’t guarantee final mortgage approval:
Once you make an offer, the lender still needs to approve the property itself. Appraisals, condition, zoning, and condo status all factor in. But having a pre-approval clears half the hurdles in advance.
Conclusion
Pre-qualification is a starting point, but pre-approval is essential for serious buyers. It’s the difference between dreaming and doing in today’s market.
Still have Questions? Book a free call with Malcolm the Mortgage Guy
First-Time Buyer Mistakes to Avoid
Buying your first home is exciting, but costly mistakes can derail your plans. Knowing what to avoid can save you thousands and months of stress.
Introduction
Many first-time buyers jump into the market without understanding key risks. From underestimating costs to choosing the wrong mortgage, the learning curve can be steep. Here’s what to avoid so you don’t learn the hard way.
Ignoring closing costs and focusing only on the down payment:
Many buyers save just enough for the 5% or 10% down, only to discover they need thousands more for legal fees, taxes, insurance, and adjustments. This last-minute scramble can delay closing, or force you to dip into high-interest credit.
Making big purchases before closing day:
Buying a car, furniture, or racking up your credit cards before closing can sink your mortgage approval. Lenders re-check credit before funding. A last-minute change can trigger a denial, even after you’ve signed the offer.
Failing to get a full mortgage pre-approval:
Pre-qualifications don’t count. Without a formal pre-approval, you may be shopping above your budget or offering without lender support. It’s risky, especially in fast-moving markets where firm offers are common.
Stretching your budget to the max:
Just because you qualify for a $750,000 mortgage doesn’t mean you should take it. Life happens, job changes, rising costs, or emergencies. Overextending leaves no room for error and puts your home at risk.
Overlooking property condition and hidden costs:
A house that “looks fine” may hide plumbing issues, roof damage, or poor insulation. Skipping the inspection to win a bidding war can cost you tens of thousands later. Even condos can come with unexpected special assessments.
Conclusion
Avoiding these first-time buyer mistakes will protect your finances, reduce your stress, and set you up for long-term success as a homeowner.
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