How much down payment you need to buy a home will depend on three key factors; the purchase price, your monthly payment budget and your overall mortgage pre-qualification.
The purchase price affects your down payment
The purchase price affects how much of a percentage down payment you’ll need due to Canadian mortgage lending rules. It’s essential to remember that your down payment can’t be borrowed funds, although so long as you have all the paperwork in order, you can use gifted money towards your down payment. For homes priced under five hundred thousand, you’ll need at least a 5% down payment; for homes priced between five hundred thousand and one million, you’ll need 5% to 10% down; and for homes over a million, you’ll need 20% down.
Your down payment affects your monthly expenses
How much you can use for your down payment will affect how much you’ll pay in monthly payments. Even if you qualify using the minimum down payment option, you may not feel comfortable based on how much your mortgage payment will be monthly. However, a larger down payment will reduce your monthly mortgage costs. Lenders will also factor in how much your total monthly expenses will be when assessing your application.
Your overall mortgage pre-qualification will also affect your down payment
In BC, when borrowing with a mortgage, 5% is the minimum down payment for an owner-occupied home purchase. Like lending over a million dollars, 20% is the minimum for a tenant-occupied home. While these are the minimums, your exact financial situation and lender qualification may require more than the minimum. Many factors come into play when applying for a mortgage. Your mortgage lender will be qualifying you for the mortgage but also preparing the property. A low credit score or high consumer debt can impact your ability to be eligible for a mortgage. On the other hand, if the home you want to buy is risky(such as a recovered grow-op) or doesn’t conform to current zoning regulations, your mortgage will wish for a higher down payment as a security.
