-Yes, Here’s How!
Many Canadians assume they need a 20% down payment before they can buy a house. If you don’t have a 20% down payment, it can feel like homeownership is out of reach. In reality, eligible buyers can purchase with much less. The minimum starts at 5%, though the amount depends on the home’s price.
A smaller upfront investment comes with trade-offs. You will usually need mortgage loan insurance, and your monthly payment may be higher. Still, opting for a low down payment can be a practical option if you understand the rules, qualify for a mortgage, and leave enough room in your budget for closing costs and homeownership expenses.
Key Takeaways
- The minimum down payment is 5% on the first $500,000 and 10% on the portion above $500,000 for eligible homes priced below $1.5 million.
- Mortgage loan insurance is usually required when your down payment is below 20%. The premium is generally added to your mortgage.
- First-time buyers may combine the First Home Savings Account and the Home Buyers’ Plan to build their down payment.
- First-time buyers and buyers of new builds may qualify for a 30-year insured mortgage amortization.
The 20% Down Payment Myth
The Real Minimum Is Tiered
Canada’s minimum down payment depends on the purchase price. For a home priced at $500,000 or less, the minimum is 5%. For a home priced above $500,000 and below $1.5 million, buyers need 5% on the first $500,000 and 10% on the remaining amount. Homes priced at $1.5 million or more require at least 20% down and do not qualify for mortgage loan insurance.
For example, on a $600,000 home, the minimum down payment is $35,000: 5% of the first $500,000, or $25,000, plus 10% of the remaining $100,000, or $10,000. On a $400,000 home, the minimum is $20,000.
Why 20% Still Matters
A 20% down payment removes the need for mortgage loan insurance. It can also lower your mortgage balance and monthly payment. It is not the minimum amount needed to buy a home. At REMAX, we often see buyers delay their search because they view 20% as a requirement rather than one option among several. A larger down payment can provide more flexibility, but reaching that milestone may also mean waiting longer, changing neighbourhood preferences, or competing for different properties later. The right approach depends on your financial position, housing needs, and the opportunities available in your local market.
What Lenders Look At
Your down payment is only one part of mortgage approval. Lenders also review your income, credit history, existing debts, employment situation, and ability to pass the mortgage stress test. Self-employed buyers, buyers with weaker credit, or buyers using non-traditional down payment sources may face extra documentation requirements or need a larger down payment.
Mortgage Loan Insurance and Your Costs
What Mortgage Loan Insurance Does
If you buy with less than 20% down, your lender will usually require mortgage loan insurance. This coverage protects the lender if you stop making mortgage payments. It does not cover missed payments, job loss, or a decline in your home’s value. The premium depends on your down payment percentage and mortgage terms. It is usually added to your mortgage rather than paid in cash at closing. Provincial sales tax on the premium may still be payable at closing in Ontario, Quebec, and Manitoba.
10% vs. 20% Down Payment Compared
A 10% down payment means borrowing more and paying a mortgage loan insurance premium. A 20% down payment avoids the premium and reduces the amount you finance. Compare the monthly payment, total interest over your amortization, insurance premium, closing costs, and the time it would take to save the larger down payment.
When Paying the Premium May Make Sense
Mortgage loan insurance can help buyers enter the market sooner. This may suit someone with stable income, manageable debt, emergency savings, and a home they expect to own for several years. It may be less suitable if the purchase would leave you with little cash after closing or a payment that feels difficult to manage. Buying sooner does not guarantee price growth, so the decision should still work if home values remain flat or decline.
Saving for a Down Payment
Start With the First Home Savings Account
The First Home Savings Account allows eligible Canadians to contribute up to $8,000 each year, to a lifetime limit of $40,000. Contributions may reduce your taxable income, and qualifying withdrawals for a first home are tax-free. A couple where both buyers qualify could save up to $80,000 through FHSAs. Unused funds can generally be transferred to an RRSP without affecting RRSP contribution room.
Add the Home Buyers’ Plan
The Home Buyers’ Plan allows eligible buyers to withdraw up to $60,000 from their RRSP to buy or build a qualifying home. The withdrawal is not taxed if you meet the rules and repay it over the required period. A buyer who has fully used both programs could access up to $100,000. A qualifying couple could access up to $200,000. The amount available depends on their savings, contribution room, and eligibility.
Check New-Build and Local Tax Rebates
Eligible first-time buyers of a newly built or substantially renovated home may qualify for a federal GST/HST rebate of up to $50,000. The full rebate applies to homes valued at $1 million or less. A partial rebate may apply to homes priced between $1 million and $1.5 million, based on the applicable eligibility rules and rebate calculation. Land transfer tax rebates may also be available in Ontario, British Columbia, Prince Edward Island, and Toronto. The rules, amounts, and eligibility requirements vary by location.
Consider a 30-Year Amortization
First-time buyers purchasing a newly built home may qualify for a 30-year amortization on an insured mortgage. A longer amortization can lower your monthly payment and may help you qualify for a larger mortgage. It also means paying interest for longer. Review the total borrowing cost before choosing this option.
What a Low-Down-Payment Purchase Looks Like in Practice
Budget Beyond the Down Payment
The down payment is only one part of your upfront cost. You may also need money for legal fees, land transfer tax, an inspection, moving costs, property insurance, adjustments, and applicable taxes on your mortgage loan insurance premium. Many buyers budget roughly 1.5% to 4% of the purchase price for closing costs, though the total varies by province, municipality, property type, and available rebates. Keep an emergency fund after closing rather than using every dollar for the purchase.
Build Equity from a Smaller Starting Point
With a 5% or 10% down payment, you begin with less equity in the home. Each mortgage payment can still build equity because part of the payment goes toward principal. This approach tends to suit buyers who plan to own the home for several years. A longer time horizon can give you more room to manage market changes, selling costs, and the early years of mortgage payments.
Frequently Asked Questions
When is it smarter to wait and save 20%?
Waiting may make sense if a major life change could affect your income or expenses within the next few years. This may include parental leave, a career change, caring for a family member, or plans to return to school. A larger down payment can reduce your monthly mortgage payment and leave more room for these changes.
The type of home also matters. Buying with less than 20% down may feel more manageable when you don’t have 20% down payment and the property has predictable costs, such as a newer condo with a healthy reserve fund. An older detached home with an aging roof, furnace, plumbing, or foundation may require more cash after closing than a smaller down payment leaves available.
Can my down payment be gifted?
In many cases, lenders accept a non-repayable gift from an immediate family member as part or all of your down payment. You will usually need a signed gift letter, proof that the funds were transferred, and bank statements showing where the money came from. Lenders may also want the gift deposited before closing so they can review the paper trail.
A gift can help you buy a house sooner, but it does not replace mortgage qualification. You still need to meet income, credit, debt-service, and stress-test requirements. You should also have enough money for closing costs, moving expenses, and a financial buffer after you get the keys.
Does mortgage loan insurance protect me if I cannot make payments?
No. Mortgage loan insurance protects the lender if you default, not you. It does not cover your payments if you lose your job, become ill, or face another financial setback. Before you buy a house, consider how long you could cover the mortgage and essential bills with your savings, and avoid taking on a payment that leaves no room for repairs, rising costs, or a change in income. An emergency fund and appropriate disability or life insurance can provide more direct protection.
You do not need a 20% down payment to buy a house. A REMAX Canada agent can help you understand local prices, property types, how to buy a home with a low down payment, and how to buy a house with a low down payment in your market.
