Down Payment 101: What Ontario Home Buyers Need to Know
For a lot of buyers, the down payment feels like the biggest mountain in the whole home buying process. And honestly, I get it. It is one of the biggest barriers people run into, especially in Ontario.
But once you understand how down payments actually work, the process starts to feel a lot less intimidating.
If you are buying a home and trying to figure out how much you need, where it can come from, and what counts, this guide will walk you through it clearly.
What Is a Down Payment?
Your down payment is the amount of money you put toward the purchase price of a home upfront. Your mortgage covers the rest.
Put simply, the bigger the down payment, the smaller the mortgage you need.
Minimum Down Payment Rules in Canada
In most standard owner-occupied purchase situations:
- For homes priced up to $500,000: minimum 5% down
- For homes priced between $500,000 and $1,499,999: 5% on the first $500,000 and 10% on the portion above $500,000
- For homes at $1.5 million and above: minimum 20% down
This is one of the biggest areas where buyers get confused, especially when they move above the $500,000 mark. The required down payment is not always a flat percentage across the whole price.
What Happens If You Put Less Than 20% Down?
If your down payment is under 20%, your mortgage will usually need default insurance. This is often called an insured mortgage.
That insurance protects the lender, not the buyer. The premium is typically added to the mortgage amount, which means you are financing that cost over time.
Putting less than 20% down is still very common. It does not mean you are doing something wrong. It just means there is an extra cost to account for.
Where Can the Down Payment Come From?
Acceptable down payment sources often include:
- Your own savings
- Investments or GICs
- RRSP withdrawals through the Home Buyers’ Plan, if eligible
- Funds from a First Home Savings Account, if eligible
- A gifted down payment from an immediate family member, if lender rules allow
- Proceeds from the sale of another property
What matters is not just where the money came from, but also whether it can be properly documented.
What Buyers Often Forget
A lot of people focus so heavily on saving the down payment that they forget about closing costs.
In Ontario, closing costs can include:
- Legal fees
- Land transfer tax
- Title insurance
- Adjustments
- Home inspection
- Appraisal, in some cases
You need to plan for both the down payment and the cash required to actually close the transaction.
How a Bigger Down Payment Can Help
- Lower monthly mortgage payments
- Less interest paid over time
- Potentially better mortgage options
- Reduced insurance costs or no insurance at all if you reach 20%
- Stronger overall application in some cases
That said, bigger is not always automatically better if it drains every dollar you have. You still want a healthy cash cushion after closing.
Glossary
| Term | Meaning |
|---|---|
| Down Payment | The portion of the purchase price you pay upfront. |
| Insured Mortgage | A mortgage with less than 20% down that requires mortgage default insurance. |
| Closing Costs | The extra costs you pay at or before closing in addition to the down payment. |
| Gifted Down Payment | Funds gifted by an eligible family member, subject to lender requirements. |
| Home Buyers’ Plan | A federal program that may allow eligible buyers to withdraw from their RRSP for a home purchase. |
Frequently Asked Questions
Do I need 20% down to buy a home?
No. Many buyers purchase with less than 20% down. But if you are under 20%, mortgage default insurance usually applies.
Can my down payment be gifted?
Often, yes. Many lenders allow gifted down payments from immediate family members, as long as the funds are documented properly.
Can I use borrowed money for my down payment?
Sometimes, but it depends on the lender and the full strength of your application. It is not always allowed, and even when it is, it can affect affordability.
Should I use all my savings for the down payment?
Usually not. You still want money left over for closing costs, moving expenses, and a financial cushion after you take possession.
Need Help Figuring Out Your Numbers?
If you are unsure how much down payment you need, whether your funds are acceptable, or what price range makes sense for you, I can help you work through it clearly.
Deepak Bansal - Mortgage Broker, Ontario
Phone: 416-347-9292
Email: info@mortgagesbydeepak.ca
Website: www.mortgagesbydeepak.ca
