Down Payment 101: Frequently Asked Questions About Down Payments in Real Estate
FAQs about down payments BC
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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Down Payment 101
Figuring out your down payment and how much you’ll be putting towards your purchase is an extremely important step in the home buying prep process.
This blog goes through down payment 101 frequently asked questions, and minimum down payment information so that you can understand what you need to be able to buy a home in BC.
For everything you need to know about down payments in BC when purchasing a home, keep reading!
What is the minimum down payment in BC?
Minimum Down Payment for Homes Valued under $500,000
For homes with a purchase price of $500,000 or less, the minimum down payment remains at 5%.
Minimum Down Payment for Homes Valued under $1,000,000
The homes between $500,000 and $1 million, the minimum down payment is 5% for the first $500,000, and ten percent of the remaining balance.
Minimum Down Payment for Homes Valued over $1,000,000
For homes with a purchase price of $1 million or more, the minimum down payment is 20%.
Minimum Down Payment Example Calculations
Example #1: Purchase price: $400,000
$400,000 @ 5% (anything less than $500K is @5%): $20,000
Total down payment minimum for a purchase price of $400,000: $20,000
Example #2: Purchase price $750,000.
First $500K @ 5% minimum down: $25,000
$250K ($750-500K) @ 10% minimum down: $25,000
Total down payment minimum for a purchase price of $750,000: $50,000
Example #3: Purchase price: $1,200,000
$1,200,000 @ 20% (all homes above $1,000,000 subject to min 20% down: $240,000)
Total down payment minimum for purchase price of $1.2M: $240,000
Does the deposit form a part of my down payment?
Yes it does, thus the deposit would form a part of your down payment and in turn also the purchase price.
For more information on deposits, read our blog post here: Real Estate Deposits 101.
Can I use money gifted to me as part of my down payment?
In most cases lenders will accept money that is gifted to you as part of a family payment if it is from a family member. (parents are usually best)
A gift letter is usually required to be signed by the donor of the money to confirm it is not a loan, as your broker and/or bank need to properly calculate your debt service ratio.
Can I use funds from my RRSP for a down payment?
Yes, you can use up to $35,000 per calendar year to purchase or build a home for yourself or a related persons with a disability from your RRSP account via the government’s Home Buyers Plan (HBP).
Generally, you have up to 15 years to repay your RRSP amount that you withdrew for your down payment. Repayment starts in the second year, and you can repay the full amount in to your RRSPs at any time, as well as begin your payments earlier than the 2 year mark.
Mortgage Insurance Premium for High Ratio Mortgages
A buyer will require mortgage insurance premium from companies like CMHC or Genworth if they require a “high ratio mortgage” or are putting less than 20% down. The lender essentially requires you pay a premium to offset the risk of your “high ratio mortgage.”
The premium may be paid upfront at the time of purchase (lump sum) or added to the mortgage principal to be paid over time. Many buyers add the premium on to their monthly mortgage payment, but you will have to pay interest on the premium.
The amount of how much the premium costs depends on how much the buyer puts down, and works on a sliding scale.
One benefit of putting MORE than 20% down is that you don’t need to pay the insurance premium.
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If you’re looking for a realtor to help you buy or sell real estate in the Greater Vancouver or Fraser Valley area then reach out to our realtor team by call, text, or email and we will walk you through the steps towards finding your dream home!
