What is a minimum down payment ?
A down payment is a portion of the cost of purchasing a home that is paid prior to borrowing the remaining portion. A lender may have some loan products available where they’ll allow this initial difference in payment to be used toward future higher payments. It’s similar to having a loan from your bank where you make small monthly payments on top of your mortgage each month.
The minimum amount you need for your down payment depends on the purchase price of the home.
If you can’t provide a down payment of 20% of the cost of your property, you must purchase mortgage loan insurance to protect against losses.
Purchase price of your home Minimum amount of down payment
5% of the purchase price
5% of the first $500,000 of the purchase price
10% for the portion of the purchase price above $500,000
20% of the purchase price
If you’re self-employed or have a poor credit history, your lender may require a larger down payment. Does this mean that you are unable to attain financing? Not necessarily. One way to secure a loan and make the amortization payments stretch is by reducing the principal on your property so that the mortgage payments don’t have to be as large after all!
If the purchase price of your home is $500,000 or less
Suppose you needed to purchase a certain home for $400,000. The most you would be able to pay for the down payment is 5% and your mortgage company will not accept less than that or you won’t get an approval as one doesn’t have sufficient income to support a loan in this value. This means that if interest (the fee you need to pay on top of the mortgage) and everything else added up equals more than 5%, then the amount of the loan won’t change because no additional money will come in. The cost of the down payment in relation to the overall sale price is known as equity.7
If the purchase price of your home is more than $500,000
Suppose the purchase price of your home is $600,000. You can calculate your minimum down payment by adding two amounts together: 5% of the first $500,000 (which comes to $25,000), and 10% of the remaining balance ($100,000) – equaling a total of $35,000.
What is mortgage loan insurance
Mortgage loan insurance protects the lender when you can’t make your mortgage payments. This type of insurance doesn’t protect you. If your down payment is less than 20% of the price of your home, you may have to get mortgage loan insurance.
Your lender may require that you get mortgage loan insurance, even if you have a 20% down payment. That’s usually the case if you’re self-employed or have a poor credit history.
Mortgage loan insurance isn’t available if:
- the purchase price of the home is $1 million or more
- the loan doesn’t meet the mortgage insurance company’s standards
Your lender coordinates getting mortgage loan insurance on your behalf if you need it.
Work with Mortgage Brokers For More Information
Powered by Dominion Lending Centres, Concept One Financial Group is a team of mortgage professionals work for our customers – not the lenders – to ensure our customers receive the best rates and products available in today’s marketplace. Whether they are looking to purchase their very first homes or upgrade to a new home, mortgage renewal, refinance for equity take out, purchase investment properties.
Our lending solutions are catered for the conventional, self-employed, new immigrant, and non-resident; residential and commercial mortgages; Insurable and uninsured. As is customary in the field of Canadian mortgages, we deal with big banks, smaller lending institutions and private lenders. Each client’s financial needs differ, which is why we work with a variety of lenders.