How Much Do You Need For a Down Payment?: Minimum Down Payment BC
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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If you’re thinking of purchasing a home then it is very important to understand what a down payment is, how it works throughout the purchasing process, and the amount that you are required to pay. This blog goes through all of the basics of a down payment, along with frequently asked questions to help you make a decision on how much to put towards your purchase. Read for important details!
What is a down payment?
The down payment is an amount of money that the buyer pays towards their purchase, while the rest of the purchase price is funded by a mortgage lent by a bank to be repaid over a period of time.
The deposit is a part of the down payment, which is typically paid within 24 hours of subject removal, whereas the down payment funds are due at the time of completion to finalize the purchase. To learn more about the difference between the deposit and down payment, visit our blog here: Deposit vs Down Payment
What is the minimum down payment in Canada?
The updated rules as of February 2016 for the minimum down payment in Canada are as follows:
- If the purchase price is less than $500,000, the minimum down payment is 5%.
- If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000.
- If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
Minimum Down Payment Examples
Example Minimum Down Payment BC #1: A home that is worth $500,000
- Therefore, numerically the minimum down payment on a $500,000 purchase price is $25,000.
Example Minimum Down Payment BC #2: A home that is worth $900,000
- Therefore, on $900,000 purchase, you would pay $25,000 to cover the minimum for the 1st $500K, and then $50,000(10%) for the amount between $500,000 and $1M (10% of $400,000).
- Total $65,000 as a minimum down payment for a home purchased for $900,000.
Example Minimum Down Payment BC #3: A home that is worth $1,200,000
- For example, on a purchase of $1,200,000, the down payment of 20% would be calculated on the entire balance – not on a sliding scale.
- Total minimum down payment in this scenario is $240,000.
Prior to this February 15, 2016 change, the rule of thumb was 5% for all properties regardless of the price. Thus, it is important to note that this has changed.
For more information on down payments in BC, read our blog post here: Down Payment 101
When is the down payment due?
The down payment is due at the time that the property completes.
Does my deposit form a part of my down payment?
Yes, the deposit forms a part of the down payment. If a real estate purchases completes as planned, the deposit is then credited towards the purchase price and forms a part of the down payment. Therefore, is it a part of the down payment, but they are not the same thing and are paid at different times.
An example of how this might work is:
- Purchase price $550,000
- Accepted offer on June 1st, Subject removal June 7th, Completes July 15th
- Deposit of 5% of purchase price ($25,000) due on June 8th (within 24 hours of subject removal)
- Minimum down payment required is 5% on $500,000 and 10% on remaining $50,000 of purchase price = $30,000
- Buyer decides to put minimum down payment of $30,000
- $30,000 total down payment funds required – $25,000 deposit already paid = $5000 remaining down payment due at completion on July 15th
What is mortgage loan insurance and do I need to pay it?
Mortgage loan insurance, also known as mortgage default insurance, is an insurance premium charged by the mortgage lender in case you are not able to make your mortgage payments. This protects the lender in the case that you default.
Mortgage default insurance is required if:
- Your down payment is less than 20% (you are considered a high-ratio mortgage)
It may also be required if you have poor credit history or are self-employed, even if you have a 20% down payment.
To pay your premium, it can either be added to your mortgage loan or you can pay it with a lump sum upfront. Keep in mind that if you add the premium to your mortgage loan that you will also be paying interest on your premium at the same interest rate you’re paying for your mortgage.
Does the size of my down payment affect the insurance I am charged?
The amount of down payment that you put down will determine whether you have a high-ratio mortgage which must be insured, or a conventional mortgage.
A conventional mortgage is when you put more than 20% down towards your purchase.
A high-ratio mortgage is when you put less than 20% down towards your purchase.
For those buyers that have a high ratio mortgage, they are also required to pay an insurance premium, issued by a company like Genworth or Canadian Mortgage Housing Corporation. (CMHC) The amount will depend on the amount you are borrowing and the percentage of your down payment.
Usually, mortgage default insurance premiums range between 0.6% and 4.50% of the mortgage amount. This premium can be paid at the time of purchase, or added to the principal amount of your mortgage and paid regularly when you make your mortgage payments.
If you’re looking to find premiums based on your down payment amount you can check out the 3 mortgage insurers that we have in Canada:
Are there options I can utilize to help me pay my down payment?
Yes. In Canada we have a program called the Home Buyers Plan where you can withdraw up to $25,000 tax free from your Registered Retirement Savings Plan (RRSP) to go towards buying or building a qualifying homes.
Keep in mind that if you withdraw that amount, the government requires that you put the same amount back in to your RRSP within 15 years. If you don’t repay the full amount within 15 years, then you will be taxed on the withdrawn funds. Therefore, before taking money out of your RRSP make sure that you consider if you’ll be able to make the repayments over the course of 15 years, and if withdrawing those funds will impact your retirement savings.
Are you thinking of purchasing a home in the near future? Are you wondering what your closing costs are going to be, and if you have any exemptions to claim? Give us a call at 604-765-0376. Prefer text? 604-319-0200. Or email us at firstname.lastname@example.org – we’re here to help !
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