It’s down payment time! What does that exactly mean? How much should it be? What is a down payment? We’ll go over this, again, all in super simple form below!

A down payment is commonly referred to as a deposit. They are one in the same thing.

When you buy a home and your final subjects are removed (see here blog on contracts), you will typically be required to pay your deposit via wire or bank draft (whichever you have agreed to) within 24 hours. This does not have to be the total amount of cash you use for the purchase, just the amount you will try up in trust until it forms part of the purchase price at the completion of the purchase.

How do i pay the down payment?

Typically once the subjects are removed from your contract, you will meet with your REALTOR who will take your bank draft and deposit it within his brokerage Trust Account. It will remain here until the contract ‘completes’ which is the day both parties have agreed upon.

How much should my deposit be?

Well this can depend based on your circumstances, the price of the home and law.. Before we move forward though, take a look at these minimums for down payments:

$500,000 or Less = 5% down as a minimum
$500,000 - $999,000 = 5% on the first $500,000, then 10% on the remaining balance
$1,00,000 or more = Minimum of 20% down

We always recommend as high an amount as possible, after all, the more you put down, the less your paying in mortgage payments!

I Keep Hearing About 20% down ?!?!

You’ve probably heard the 20% rule and that’s a good place to start if you can achieve it. The other important factor here is the Canada Mortgage and Housing Corporation (CMHC)

If your deposit is below 20% of the home value, you will have to pay insurance premiums to the CMHC as a penalty for borrowing over 8-% of the homes purchase price. Over the years this can amount to $1,000’s in additional payments so putting down 20% is as a minimum is always recommended to avoid these insurance premium costs.

If that’s not possible, you can check the link below on the CMHC’s website to calculate what the insurance premiums will be, this figure is worked out based on the size of your down payment: CMHC Premium Checker

What’s the Home Buyers Plan (HBP) ?

To assist you in building your deposit, you can withdraw up to $25,000 from your RRSP plan without being taxed. The hitch is, you need to be able to pay this amount back within 15 years of withdrawal. Unless you are confident you can keep up with the re-payment schedule, you may want to start saving some more funds before using this option. The withdrawal is treated as more of a loan so there are penalties for defaulting.

If you can keep up with the payment schedule, this is an amazing way to add a large amount to your deposit!
To learn more about the HBP, see the below link to the government web page: Home Buyers Plan (HBP) FAQ

We’ll say it until we go blue in the face! But we’ve got you covered. Buying your first home is a matter of communication and having the right people in your corner. We’ve picked the best Notaries/lawyers, Mortgage Brokers, Home Inspectors and more, to purely make this process as simple as possible. This can be a stressful enough time as it is so we want your journey to be a simple one stop shop where it’s all taken care of.

As a part of our service, we guide you through EVERY step and offer 24 hour care for our clients, even if you get those random moments you feel jittery, nervous or unsure. This isn’t something we charge you for either. Consider it a freebie.

Check out some of our other blogs for more simple breakdowns on other aspects of the process. We’re open to calls, texts and email too, so touch base with any questions you may have.

Speak soon!
Vancouver First Time Home Buyers

Jay Mcinnes
T: 604.771.4606

Ben Robinson
T: 604.353.8523