Down Payment 101
Having a deposit and a down payment ready to go when purchasing a home is an extremely important step. Your mortgage broker or bank will be able to guide you through the minimum down payment rules, and what you can qualify for in terms of purchasing power based on how much money you put down. With that being said, here are some basic frequently asked questions to help guide you through down payments in BC when purchasing a home.
How much down payment is required? What is the minimum down payment in BC?
As of February 2016 the down payment scheme is as follows:
For homes with a purchase price of $500,000 or less, the minimum down payment remains at 5%.
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.
For homes with a purchase price of $1 million or more, the minimum down payment is 20%.
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
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
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
Can I put less down if I qualify for the first time home buyers (FTHB’s) loan offered by the BC Government? (aka BC HOME Partnership)
Yes, the FTHB program allows a buyer to purchase a home up to $750,000 with the government matching up to $37,500. The regular down payment rules still apply (5% if lower than $500,000, and 10% for any amount over $500,000) For example, if a buyer is purchasing a home under $500,000, this loan allows them to put a minimum of 2.5% down and have the government match the other 2.5% to create a total of 5% down. These loans are interest free for the first 5 years.
*This program is no longer available
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.
What is a high ratio mortgage?
A high ratio mortgage is a mortgage where the buyer is putting less than 20% down. So if a buyer is putting anywhere between 5%-19.99% down, then their mortgage would be considered a high ratio mortgage. In this case, the lender would provide up to 95% of the mortgage. All high ratio mortgages require insurance, typically by a company like Canadian Mortgage Housing Corporation (CMHC) or Genworth.
What is a conventional mortgage?
A conventional mortgage is a mortgage where the bank finances 80% or less, thus the buyer puts down 20% or more. Mortgages that exceed this limit must be insured against default by companies like Genworth or CMHC, and are referred to as high-ratio mortgages.
If you can put at least 20% down, having a conventional mortgage is typically the best option, as you will not have to pay premiums on mortgage insurance and typically have a stronger purchasing power.
Do I need mortgage insurance?
A buyer will require mortgage insurance from companies like CMHC or Genworth if they require a “high ratio mortgage” or are putting less than 20% down. The premium may be paid upfront at the time of purchase or added to the mortgage principal to be paid over time. Many buyers add the premium on to their monthly mortgage payment. The premiums depend on how much the buyer puts down, and works on a sliding scale.
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 $25,000 per calendar year to purchase or build a home for yourself or a related persons with a disability from your RRSP account. It is called the 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.
For more information on the Home Buyers Program, read this blog post: Home Buyers Program with RRSP Deposits.
Still looking for more information? Would you like a recommendation on a mortgage broker? Wondering about prices and what homes are selling for? Give us a call, text, or email and we will walk you through the steps towards finding your dream home.