Buying a home is a significant milestone! For many, it can be a challenging endeavour, especially when it comes to financing. Among the many misconceptions surrounding homeownership, the belief that you need to put a hefty 20% down payment remains prominent. However, in Canada, this is not necessarily the case. Today, we’ll explore why it’s not always necessary to put down 20% when buying a home, highlighting the benefits of putting down less and debunking the myths associated with those smaller down payments.

Easier for First-Time Home Buyers

Saving up a substantial amount of money for a down payment can be an overwhelming task, especially for first-time home buyers. Fortunately, Canada offers a more accessible path to homeownership by allowing a down payment as low as 5% for homes valued up to $500,000. After that, 10% is required for anything above and up to $999,999. This reduced down payment requirement makes it easier for individuals and families to enter the housing market and fulfill their dreams of owning a home. Below is a graph that explains this in more detail.

CMHC Protection

When putting down less than 20% on a home in Canada, borrowers are required to pay for mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC). While this insurance adds an additional cost, it serves as a vital protection for both the homebuyer and the lender. In the event of default, the CMHC insurance helps safeguard the lender’s investment, allowing them to recover a significant portion of the outstanding mortgage amount. This protection contributes to a more secure lending environment and allows homebuyers to access affordable financing options.

Avoid Higher Interest Rates by Partnering with CMHC

While CMHC insurance is an added expense, it provides benefits that can outweigh the costs. When you put down less than 20% on a home, the lender views you as a higher-risk borrower. However, by obtaining CMHC insurance, you gain the trust of the lender, reducing the perceived risk. As a result, you’re more likely to secure a mortgage at a competitive interest rate. The CMHC insurance acts as a reassurance to lenders, enabling them to offer more favourable terms, ultimately saving you money and headaches in the long run.

Breaking the myth: You need to pay 20% after your first home purchase

A lot of people are under the impression that you can pay 5% for your first home but 20% on any home after that. This is not the truth at all! As long as your next home is becoming your primary residence, and is less than 1 million dollars, you only need to put down 5%. This is great news for people in the market to buy what they need now and work on their equity so they can, later on, buy what fits their growing home without worrying about saving so much more than they might have expected. This way they can save any extra cash as a cushion for their families.

The idea that a 20% down payment is an absolute requirement for purchasing a home in Canada is a common misconception. By allowing down payments as low as 5% and partnering with CMHC to secure mortgage insurance, the Canadian housing market provides accessible pathways to homeownership for first-time buyers and those who may not have substantial savings. These options not only make the dream of owning a home more achievable but also protect buyers and lenders alike. So, if you’re considering buying a home in Canada, don’t let the 20% myth deter you—explore the options available, consult with professionals, and embark on your journey toward homeownership with confidence.

Remember, buying a home is a big life decision, and it’s important to consider your personal financial situation, long-term goals, and seek advice from mortgage professionals to make an informed decision that aligns with your specific circumstances.

Happy house hunting!

If you have any questions along the way, please feel free to reach out to our team at sales@goodmanors.ca

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• The Good Manors Team