Down Payment Options for First Time Home Buyers

First Time Buyers

Purchasing a home is a big deal.  It's likely the largest purchase of your life.  The minimum down payment amount for most purchases is 5% of the purchase price, but you also have to consider moving costs and closing costs.  This is the amount of money you are personally committing, so coming up with a down payment can be challenging; however, there are options, depending on the lender, the location of the purchased property, your down payment amount and your credit score. 

Not everyone has the capacity to generate savings of the sum required for a 5% down payment, but if you have an RRSP account, you can withdraw up to $25,000 with no penalty under the Home Buyer's Plan (HBP)

RRSP Withdrawal Conditions

  1. Must be a resident of Canada at the time of the withdrawal.
  2. Must receive or be considered to have received, all withdrawals in the same calendar year.
  3. Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdrawal amounts of $25,000 or less.
  4. Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. 
  5. You have to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home.
  6. Also, there are a number of rules for repayment that we can review together.

If an RRSP withdrawal is not an option, here are some other avenues to consider:

  • Non-repayable gifted funds from an immediate relative
  • In some cases, you can borrow the down payment, just be aware that the loan payment will be factored into your affordability calculation
  • You can sell some personal property. Make sure you have proof of ownership and a paper trail. If a lender sees a large amount of money deposited into your account, they want to know where it came from.
  • You can sell any assets, such as stocks or bonds
  • Use the cash value built up in your life insurance policy
  • You can use your TFSA. Remember you can withdraw as much as you want tax-free. As with an RRSP withdrawal, there are few rules to repayment that we can review.

Different lenders have different down payment requirements, you need to speak with your Mortgage Professional for an assessment tailored specifically to you.  I would be happy to talk with you about your options.