First-Time Home Buyers: Down Payments 101

One of the biggest hurdles that first-time home buyers need to overcome is getting their down payment together. Although you want to have the largest down payment possible, you don’t want to wait forever while you save your money. Here are some things you need to know about down payments and how you can get into your first home faster.

You probably already know that house prices in Ontario are very high. In fact, house prices have soared in Ontario over the last 5 years. In some neighbourhoods, house prices actually doubled! However, house prices have started to come down in some areas.

Regardless of the market, you will need to have a down payment for the home you purchase. The minimum down payment you can make depends on the purchase price of the home. If the purchase price is $500,000 or less, you need a minimum down payment of 5%. If the purchase price of your home is over $500,000 and not more than $999,999, your down payment is 5% of the first $500,000 and 10% for the remainder. Houses priced at $1,000,000 or more require a down payment of 20%. Your lender may require a larger down payment if you have a poor credit history or if you’re self-employed. Use a mortgage calculator to see how different down payments will affect a potential mortgage.

At any home price, if your down payment is less than 20%, you will be required to have mortgage loan insurance through the Canada Mortgage and Housing Corporation (CMHC). The premiums for this type of insurance can vary depending on the size of your down payment, and range from 0.6% and 4.5%.

Generally-speaking, you are better off having the largest down payment you can manage. That’s a tall order in 2023 when the average price of a house in Ontario is over $800,000! Thankfully, there are a number of government programs that can help you get there faster.

• The Home Buyer’s Plan allows you to withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) to put towards buying or building a home. You have up to 15 years to pay it back.
• The First-Time Home Buyer Incentive offers first-time home buyers financing without interest, in order to reduce your monthly mortgage payments. The Government of Canada offers the buyers either 5% of the purchase price of an existing home, or 5% or 10% of the purchase price of a newly constructed home. This amount must be repaid after 25 years, or when you sell the property, although you have the option of repaying it at any time. Home owners should note that they will need to pay back a percentage of the appreciation of the home as well.
• The Home Buyers’ Amount is a tax deduction that allows new home buyers to claim a tax deduction if they have purchased a home. In 2022, that amount was $10,000. Buyers must have not lived in a home that they owned in the previous 4 years, unless you are eligible for the Disability Tax Credit, in which case you do not have to be a first-time home buyer.
• The First Home Savings Account (FHSA) will become available in 2023. The FHSA combines the features of an RRSP and a TFSA. Like an RRSP, contributions are tax-deductible and like a TFSA, qualifying withdrawals to purchase a first home would be non-taxable. Canadians can make contributions up to $8,000 per year to a maximum of $40,000 across their lifetime. Although the federal government announced in their 2022 budget that these accounts would be available on April 1, 2023, most financial institutions should be offering them by mid-2023.

It’s always a good idea to get professional mortgage advice. Meet with a Kindred Mortgage Expert to see what savings solutions will best meet your down payment needs. Our Mortgage Experts will outline all your options and help you make peace with your money and get into that first home faster than you think!