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The Lowdown on Down Payment Options

Posted by AJ Hazzi on Thursday, January 30th, 2020 at 6:33am.

Here’s what to know about the most popular and effective ways to come up with a down payment on your first home—or your dream home.

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Many folks have a misguided notion of what’s required of them for a down payment, so I’m going to share some options that exist for homebuyers.

The high ratio program does not change the requirement of down payment over 500 entirely, the down payment is stepped. Ie: 5% on the first 500k and 10% on the remainder.

Another option is the government's homebuyer plan, which allows you to tap into any Registered Retirement Savings Plan (RRSP) contributions you’ve made over the years—up to $35,000 tax-free. You’d then have the next 15 years to put that money back into your RRSP.

"Your parents could give some equity from their own home to help you cover a 5% to 20% down payment."

There is also a new government-backed Home Buyer Incentive Plan that will match 5% on homes up to $500,000 (10% for new properties). It’s not a loan per se, because they’ll participate in the prorated appreciation of the property. In other words, if they lend you 5% of the home value, and the home then goes up in value by $100,000, you’re going to pay them back the original principal plus 5% of that gain.

Lastly, there’s the ever-popular ‘Bank of Mom and Dad.’ Your parents could give some equity from their own home to help you cover a 5% to 20% down payment. To skip CMHC and get the 30 year amortization in the bank of mom and dad scenario, you need to put 20% down, so you would need to receive from your parents the balance between what you have and the 20% threshold.

Make sure to follow the links we’ve provided to get more information about these programs. If you’re unsure which program is right for you, don’t hesitate to give me a call. I’d love to talk with you or get you connected with the right resources.

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