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Home buyers, what if you can’t make a 20% down payment? – MoneySense


For some Canadians, co-investing could bring the dream of home ownership within reach—but what if you don’t have friends and relatives to pool money with, or you’d rather not share your living space with other people? In that case, you have another option: co-owning your home with Ourboro, a Canadian real estate investment company that helps first-time buyers get into the market—currently, it works with buyers looking in the Greater Toronto Area (GTA).

Before we dig into how Ourboro’s co-ownership model works, let’s look at what it takes to buy a home on your own.

What is the minimum down payment for a home?

To buy a home in Canada, you must have a minimum down payment of at least 5%, but in many cases it’s 20%. This handy chart breaks down the minimum amounts by the price of the home.

Home purchase price Minimum down payment
$500,000 or less 5% of the purchase price
$500,000 to $999,999 5% of the first $500,000 of the purchase price; 10% of the portion of the purchase price above $500,000
$1 million or more 20% of the purchase price

You can buy a home with as little as 5% down, but if your down payment is below 20% of your home’s purchase price, you’ll need to buy mortgage default insurance (also called mortgage loan insurance). This coverage protects your mortgage lender in case you fail to keep up your payments. The premium for mortgage loan insurance ranges from 0.6% to 4%, depending on how much you borrow compared to the value of your home, and it’s typically added to the mortgage principle—which means you’ll also pay interest on this premium.

The exceptions are homes over $1 million, for which mortgage insurance is not available. In other words, you must have 20% saved in order to buy a property over $1 million—not an unlikely scenario, given that the average selling price of a house in the GTA was over $1.2 million in April 2022; in Vancouver, it was over $1.4 million. You won’t be able to buy the home without it.

What if your down payment is below 20%?

If your down payment isn’t enough for the home you want to purchase, you have a few options:

  • Lower your budget
  • Save for a larger down payment and hope that home prices don’t increase
  • Stick to your plan and pursue co-ownership

Should you wait for housing prices to go down?

You might be waiting a long time. With interest rates rising, home sales in Canada have declined year-over-year, but selling prices remain stubbornly high in the most expensive housing markets, mainly in Ontario and British Columbia.

For first-timers hoping to get into the market, it can be frustrating and demoralizing to watch a nest egg shrink in proportion to rising prices—and that’s before other home-buying expenses like closing costs and land transfer tax come into play.

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