Is buying your first home one of your big goals this year? If so, you must have been putting in some serious effort to save up for your down payment. For most homebuyers, scraping together this down payment is one of the toughest hurdles. A myth that makes saving tasks much harder than they need to be is the idea that a 20% down payment is a must. However, the truth is you don’t always need a 20% down payment to buy a house.

Truth Bomb: The Minimum Down Payment Isn’t 20% – It’s Much Lower

The minimum requirements for the down payment for a first-time home buyer in Canada vary. The exact amount depends on the property’s purchase price and the type of home you are buying. If you are buying a primary residence, the minimum down payment requirements are:

So, no, you don’t always need a minimum down payment of 20% to make a house yours. The 20% down payment is simply a smart financial move if you can afford it. But it’s certainly not a mandatory requirement for buying your first home. You can buy a home with as little as 5% down, depending on the property’s purchase price.

And guess what? You can buy a house right now even if you don’t have the minimum down payment saved yet. Yes, that’s right! You might be eligible for the down payment assistance programs offered by the government and some private platforms. For instance – the Tonsto down payment assistance program offers you assistance of up to $50,000 of your home’s value. These programs can give you a financial boost if you are struggling to come up with the required down payment. 

You can also borrow from your family and friends or withdraw from your RRSP for the down payment. The bottom line is that you can still make your homeownership dream a reality even if you haven’t saved up the full 20% or even the minimum down payment.

That said, a 20% Down Payment May Be Required in Some Cases!

Yes, there are a few situations where a 20% down payment is a requirement. That means if you don’t have 20% saved, you won’t be able to move forward with the purchase. Here are the cases when the minimum first-time home buyer down payment is 20% –

If You Are Buying a Home That Costs $1,500,000 or More

As mentioned already, the minimum down payment required for a home costing $1,500,000 or more is 20%. That’s because these high-priced properties don’t qualify for mortgage default insurance. Mortgage default insurance protects lenders in case a borrower can’t make payments. This is why when a home is under $1,500,000, a buyer can put down less than 20% as the insurance reduces the risk for the lender. However, once the home price goes above this limit, the lender has no protection. To reduce their risk, they require you to put down at least 20%. So, if you are considering a home in this price range, be prepared.

 If You Are Buying an Investment Property (In Some Cases)

Are you buying your first home only as an investment? The rules for down payment are usually stricter for investment properties. If the home you are buying has only one unit and you won’t live in it, the lender will require a 20% down payment. Why? That’s because investment properties are seen as riskier than primary residences. The general consensus is that if a homeowner runs into trouble, they are more likely to prioritise their primary residence over a rental property. Thus, to protect themselves, lenders demand a higher down payment for investment properties.

However, if you plan to live in a part of the home and rent out the rest, the rules are different. In that case, the down payment requirements will depend on how many units the property has –

• If the home has two units, the minimum down payment will be the same as for a primary residence. 
• If the home has three or four units, the minimum down payment will be 10%. 
• If the property has five or more units, it will be classified as a commercial property, not a residential one. So, a minimum down payment of 20% or more will be required. 

If You Are Self-Employed or Have a Poor Credit History

If you fall into any of these categories, a 20% down payment may be mandatory for you. This rule applies to you even if the price of the home you are considering is below $1,500,000. This is because lenders may see you as a higher risk –

• Self-employed people can sometimes have more fluctuating incomes.
• A poor credit history indicates that you have had trouble managing debt in the past.

Due to this, the lender will want a larger down payment to offset that risk. So, if you belong to any of these categories, the minimum first-time home buyer down payment for you might be 20% or even more.

What’s the Ideal Down Payment First-Time Homebuyers Should Aim For?

That really comes down to your budget, how much you can comfortably afford, and what your needs are.  A smaller down payment may allow you to become a homeowner sooner. However, keep in mind that a smaller down payment can result in higher monthly payments. A larger down payment, on the other hand, means lower monthly payments and less interest in the long run. However, it may take you longer to save that big amount. 

So, take your time, weigh all your options and talk to a mortgage expert before making a decision. Your home is a big investment so it’s important to make decisions that work for you now and down the line.