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The Short Answer: Yes, You Can Buy a Home with Less Than 20% Down
One of the biggest misconceptions among first-time home buyers is that you need a 20% down payment to purchase a home in Canada. While putting 20% down can have advantages, many Canadians successfully buy homes with significantly less.
In fact, the minimum down payment required for many home purchases is just 5%, making homeownership more accessible than many people realize.
If you’ve been waiting years to save a 20% down payment before starting your home search, you may be closer to buying a home than you think.
What Is the Minimum Down Payment Required in Canada?
The minimum down payment depends on the purchase price of the property.
For homes priced up to $500,000, the minimum down payment is 5%.
For homes priced between $500,000 and $1.5 million, buyers must provide:
- 5% on the first $500,000
- 10% on the portion above $500,000
Homes priced at $1.5 million or more require a minimum 20% down payment.
For example, if you’re purchasing a $600,000 home:
- 5% of the first $500,000 = $25,000
- 10% of the remaining $100,000 = $10,000
- Total minimum down payment = $35,000
Why Do Some People Recommend a 20% Down Payment?
A 20% down payment isn’t required for many buyers, but it does offer several advantages.
When you put less than 20% down, your mortgage is considered a high-ratio mortgage and requires mortgage default insurance. This insurance protects the lender if a borrower defaults on the loan.
With a 20% down payment:
- No mortgage default insurance is required
- Monthly mortgage payments may be lower
- You borrow less money overall
- You may build equity faster
That said, waiting years to save an additional 10% or 15% may not always be the best financial decision, particularly if home prices continue to rise during that time.
What Is Mortgage Default Insurance?
Mortgage default insurance is commonly provided through mortgage insurers and is required when the down payment is less than 20%.
The insurance premium is added to the mortgage amount and paid over time as part of your mortgage payments.
While many buyers view this as an extra cost, it allows Canadians to enter the housing market sooner rather than waiting until they’ve accumulated a full 20% down payment.
How Much Down Payment Do First-Time Buyers Usually Have?
Many first-time buyers purchase homes with down payments between 5% and 10%.
Rising home prices, student debt, rent costs, and everyday living expenses can make it challenging to save a large down payment quickly. As a result, many buyers choose to enter the market with the minimum down payment required rather than delaying their purchase for several years.
Every buyer’s financial situation is different, which is why speaking with a mortgage professional early in the process is so important.
Can I Use Gifted Funds for My Down Payment?
Yes. Many lenders allow gifted down payments from immediate family members.
Parents and grandparents often help first-time buyers enter the housing market by contributing some or all of the required down payment. Documentation is typically required to confirm that the funds are a gift and not a loan.
If you’re considering using gifted funds, it’s important to discuss the details with your mortgage professional before making an offer.
How Much Do You Need to Buy a Home in Peterborough?
Let’s use a simple example.
If you’re purchasing a $500,000 home in Peterborough, the minimum down payment would be $25,000.
In addition to your down payment, you’ll also need to budget for:
- Legal fees
- Home inspection costs
- Land transfer tax
- Moving expenses
- Utility setup costs
Having a financial cushion beyond the minimum down payment can help make your transition into homeownership much smoother.
Should You Wait Until You Have 20% Down?
The answer depends on your personal financial situation.
Waiting may make sense if:
- You’re close to reaching 20%
- You want to avoid mortgage insurance premiums
- You have a stable housing situation in the meantime
Buying sooner may make sense if:
- Home prices in your target area are increasing
- You have secure employment and stable finances
- You qualify for financing today
- Continuing to rent is preventing you from building equity
The right decision isn’t the same for everyone.
Frequently Asked Questions
Can I buy a home in Canada with only 5% down?
Yes. Many buyers can purchase a home with as little as 5% down, depending on the purchase price and lender requirements.
Do I need 20% down to qualify for a mortgage?
No. A 20% down payment is not required for many residential purchases in Canada.
Is it better to put down 5% or 20%?
A larger down payment reduces borrowing costs and eliminates mortgage default insurance, but buying sooner with a smaller down payment can sometimes be the better long-term financial decision.
Can first-time home buyers use gifted funds?
Yes. Many lenders permit gifted down payments from immediate family members.
Final Thoughts
The belief that you need a 20% down payment to buy a home in Canada prevents many people from exploring homeownership sooner. While a larger down payment certainly has benefits, many buyers successfully purchase homes with as little as 5% down.
If you’re wondering whether you’re financially ready to buy, the best first step is speaking with a mortgage professional and a local real estate expert. You may be much closer to owning a home than you think. Reach out today at 705-743-4444 and we can connect you with a mortgage broker and an agent ready to help!
