A lot of people ask us what is the average down payment on a house? How much do they need to save in order to buy a house? Of course, the answer always varies depending on the house, the market, and the rates. We will try to answer this question for you as precisely as possible but keep in mind, it is not a one-size-fits-all answer.
What is a Down Payment On A House?
Let’s start by giving a quick definition of a down payment before we can jump into the details of a down payment on a house. A down payment is simply the amount of money you have saved and that you will pay to buy the house at the moment of signature. The mortgage on the house will then cover the rest.
For example, if you have saved $30,000 and your house costs $300,000, your $30K will be the down payment and the $270K that is left is going to be covered by the mortgage.
What Is The Minimum Down Payment On A House?
The amount can vary based on the price of the house that you want to purchase. Of course, the minimal down payment on a house will not be the same if the house is worth $200K or if it is worth 1 million dollars. Keep in mind that if you are not able to come up with at least 20% of the price of your new home, you will need to get loan insurance.
What are the different brackets of minimum down payment?
There are three different brackets of minimum down payment in Canada. We will review each of them but if you have any questions, you can always contact Asim Ali and his team of experts.
- $500,000 Or Less
The first one is for any house of $500,000 or less, you will need a minimum down payment of 5% of the asked price. If you can put 20% that would be even better since you can avoid getting loan insurance.
- $500,000 Up To $999,999
This one is a little tricky. You will need to provide 5% of the first $500k ($25,000) and 10% of the rest, up to $999,999. This means that for a house worth $999,999, you would need a minimum of $74,999 for the down payment on the house.
- 1 Million And Up
For houses that are 1 million dollars or more, it is simply 20% of the purchase price that you need for your down payment. For example, if you buy a house worth 1 million dollars, you will need to come up with $200,000 for the down payment.
What Could Make The Minimum Down Payment Go Higher?
These numbers are a minimum guideline for all Canadians but you might have to come up with more than the minimum, but why? If you have a bad credit history or if you are self-employed, the mortgage lenders might require a bigger down payment to protect themselves from liabilities.
Where Do I Get The Money?
The capital for your down payment should come from your personal funds to keep your debt as low as possible. It is possible to borrow from family and friends or from private lenders. The problem with that is that if you have to borrow to get the minimum down payment, you might not be able to afford your house. We recommend playing it safe, waiting, and getting a house you can afford. Of course, we do not know your financial situation, in some cases, it can be a good idea to borrow for the down payment on a house.