Down Payment Options in Canada: What Every Homebuyer Should Know
For most Canadians, saving for a down payment is the biggest challenge on the path to homeownership. A down payment is the initial lump sum you pay upfront when purchasing a home—and depending on the market, that amount can be significant.
The good news? There are more down payment options available in Canada than you might think. Whether you’re a first-time buyer or looking to upsize, understanding your choices can bring you one step closer to owning your dream home.
Minimum Down Payment Requirements in Canada
How much do you need to put down on a home in Canada? It depends on the purchase price:
• Homes under $500,000: Minimum 5% of the purchase price
• Homes between $500,000 and $999,999: 5% of the first $500,000 + 10% of the amount above $500,000
• Homes priced at $1 million or more: Minimum 20% down payment required
These are the legal minimums. However, if you put down less than 20%, you’ll need to purchase mortgage insurance (CMHC insurance), which protects the lender in case of default and adds to your monthly cost. The larger your down payment, the lower your insurance premium—and overall borrowing costs.
1. Traditional Savings
Saving money over time is the most common—and financially sound—way to build your down payment. Contributing regularly to a high-interest savings account or dedicated home fund shows financial discipline and responsible money management, which lenders look for during mortgage approval.
Benefits:
• No debt or repayment obligations
• Viewed favourably by lenders
• Builds good financial habits
2. Proceeds from the Sale of Another Property
If you’re selling an existing property, the equity you've built can go toward your next down payment. In many cases, this allows buyers to exceed the 20% down payment threshold, avoiding mortgage insurance altogether.
If you’re purchasing a new home before selling your current one, bridge financing can help cover the down payment temporarily. These short-term loans fill the timing gap but usually come with slightly higher interest rates.
3. RRSP Home Buyers’ Plan (HBP)
Under the RRSP Home Buyers' Plan, eligible first-time buyers can withdraw up to $35,000 (or $70,000 per couple) from their Registered Retirement Savings Plan without paying tax.
Key Highlights:
• Withdrawals are tax-free (as long as repayment rules are followed)
• Funds must be repaid to your RRSP within 15 years
• Helps buyers tap into long-term savings early
4. Tax-Free Savings Account (TFSA)
A TFSA offers a flexible and tax-efficient way to save for a down payment. You can withdraw funds at any time, for any reason, without taxes or repayment requirements.
Benefits:
• No repayment schedules
• Withdrawals won’t impact your mortgage qualification
• Contribution room resets the following year
5. First Home Savings Account (FHSA)
Launched in April 2023, the First Home Savings Account (FHSA) is Canada’s newest and most powerful tool for first-time homebuyers. It combines the best features of RRSPs and TFSAs.
FHSA Advantages:
1. Contributions are tax-deductible, lowering your taxable income
2. Investment growth is tax-free
3. Withdrawals for qualifying home purchases are tax-free
You can contribute up to $8,000 per year, to a lifetime maximum of $40,000. If you don’t end up using the FHSA to buy a home, you can transfer it to your RRSP tax-free.
6. Gifted or Loaned Funds
With rising home prices, many Canadians are turning to family for help. A gifted down payment is acceptable to most lenders, as long as you provide a signed gift letter stating that the money doesn’t need to be repaid.
If the funds are loaned (rather than gifted), they must be disclosed to your lender and will be included in your debt servicing calculations, which could affect your mortgage qualification.
7. Borrowed Down Payments
While less ideal, borrowing your down payment is possible under certain conditions. This approach is more common in high-cost markets where saving may not be feasible.
Common borrowed sources:
• Personal line of credit: Flexible, but counts toward your total debt load
• Home Equity Line of Credit (HELOC): Best for those with equity in another property
• Personal loan: Allowed by some lenders but may impact your approval amount
Keep in mind: Any monthly payments from borrowed funds reduce your borrowing power.
Ready to Buy Your Home?
Choosing the right down payment strategy is a crucial first step in the home buying journey. Whether you're using savings, investments, or assistance from family, understanding your options helps you make confident and informed decisions.
Let’s make homeownership a reality. Contact our experienced real estate team today to explore your best down payment strategies and get personalized guidance for your next move.
