Minimum Down Payment Requirements

How the tiers work

The minimum is not one flat percentage. It is a stack.

Up to a set purchase price, one low percentage applies to the whole price. Once the price goes past that threshold, the low percentage still applies to the first portion, and a higher percentage applies only to the amount above it. Your total minimum is the two pieces added together.

That is why the minimum on a home just over the threshold barely moves, and why it climbs steadily after that. Ask your mortgage professional to run the actual number for the price you are looking at, on the day you are looking at it.

• The lower percentage applies to the first slice of the price, not to the whole price, once you are above the threshold.
• The higher percentage applies only to the amount above the threshold.
• Above a further price cap, the tiers stop applying entirely — see below.

The price cap above which the tiers stop

There is a maximum purchase price for an insured mortgage. Above that price, no insurer will cover the loan.

Because a lender cannot lend above a certain share of the value without insurance, buying above that cap means a conventional down payment — the full uninsured share of the price, whatever the current federal figure for that share is. There is no tiered option.

This is the single biggest cliff in the whole system, and in Brampton, Mississauga, Vaughan and parts of Toronto it is a live question rather than a theoretical one. If you are shopping near the cap, know exactly where it sits before you write an offer, because crossing it by a few thousand dollars can change your required down payment by a very large amount.

Why the tiers exist at all

The low minimum exists so that people who can carry a mortgage but have not saved a large lump sum can still buy. Without it, the entry point to ownership would be the full conventional down payment, which takes most households many years to reach.

The tiers exist because risk rises with loan size. The bigger the loan relative to the property, the more exposed the lender and the insurer are if the market falls or the borrower stops paying. Requiring more money down as the price rises is how the federal government limits that exposure without shutting first-time buyers out entirely.

How it interacts with mortgage default insurance

The two rules are joined at the hip. Any down payment below the conventional share triggers mandatory mortgage default insurance, which is an extra cost calculated as a percentage of your loan.

So the minimum down payment is not really a single decision. It is a trade: less money down means you buy sooner, but you borrow more, you pay an insurance premium on top, and you pay interest on a bigger balance for the life of the mortgage.

There is also a hard ceiling in the other direction. Even a buyer who qualifies for the minimum still has to pass the stress test and fit inside the lender’s debt-service ratios, and those are calculated on the loan — so the smaller your down payment, the harder the qualifying test becomes.

• Below the conventional share: insurance is mandatory and a premium is added.
• At or above the conventional share: no default insurance, no premium.
• The insurers also cap the amortization on insured loans, which raises the monthly payment relative to an uninsured one.

Where the down payment is allowed to come from

Lenders and insurers care about the source, not just the amount. Savings, investments, the proceeds of selling another property and a genuine gift from an immediate family member are all normal, accepted sources.

Borrowed money is treated differently. Some insurers will allow a down payment funded by an unsecured loan or line of credit, but only inside a narrow band of loan-to-value, only for a strong credit profile, and at a higher insurance premium. It is not the standard route.

Expect to document everything. Lenders typically want to see the money sitting in your account for a stretch of time before closing, and they will ask where a large recent deposit came from. A gift needs a signed gift letter confirming it is a gift and not a loan. Move money into the account you will close from early, and stop moving it around.

• Savings, investments and proceeds from a property sale are straightforward.
• A family gift is accepted with a signed gift letter stating no repayment is expected.
• Borrowed down payments are restricted, priced higher, and not available on every file.
• Funds held outside Canada take longer to verify — start that paperwork early.

The down payment is not the only cash you need

Buyers routinely save exactly the minimum down payment and then get caught short on closing day.

On top of the down payment you need closing costs: land transfer tax, your lawyer’s fees and disbursements, title insurance, the adjustment for property tax the seller has prepaid, and moving costs. CMHC publishes a rule-of-thumb range for closing costs as a share of the purchase price, and in Ontario the land transfer tax alone is usually the largest single line.

Some lenders will also want to see that you have a small reserve left after closing. Budget for the deposit you put down with your offer as well — it forms part of your down payment, but you write that cheque within days of your offer being accepted, not at closing.

What trips people up

A few patterns come up again and again with first-time buyers in the GTA.

• Assuming the low percentage applies to the whole price on a home above the threshold. It does not — it applies to the first slice only.
• Not knowing where the insured price cap sits, and finding out after an offer is accepted.
• Counting money that cannot be documented, or that arrives in the account too close to closing.
• Forgetting that a first-time buyer using registered savings for the down payment may need to withdraw well before closing, since transfers are not instant.
• Budgeting the down payment and nothing else, then being short on land transfer tax and legal fees.