Can you buy a home in Canada with a minimum down payment?

If you’re dreaming of home ownership but don’t have a large down payment saved up, you might be wondering if buying a home with a minimum down payment of just 5% is possible. The good news? Yes, you can! Better yet, it can either be your first home, or a second home that you or a family member will live in. But there are some key factors to consider before moving forward. I’ll walk you through what you need to know about purchasing a home with a minimum down payment Canada.

When you can buy with 5% down (hint: you don’t need to be a first-time homebuyer!)

In Canada, you can buy a home with as little as 5% down, and you don’t have to be a first-time homebuyer. People often get confused by this, and many assume that a second home can’t be bought for 5% down. This is not the case. What matters is the purchase price.

You can buy with only 5% down payment, but only if you are buying a property valued at $500,000 or less. If the home costs more than $500,000, the required down payment increases. As well, you need to be buying the home for yourself to live in, at least partially, or for a family member to live in. In other words, the property must either be owner-occupied, or it must be intended to be used as a second home or vacation home. It can’t be fully a rental property. But, if it’s a property with two units, and you’re living in one of them, that is ok. (If it has 3 or 4 units, and you’re living in one of them, you need 10% down.)

Here’s the minimum down payment Canada breakdown:

1 – For homes worth up to $500,000

You need at least 5% of the purchase price for your down payment.

So, if you’re buying a home for $450,000, you need 5% of that as your down payment. That’s at minimum a down payment of $22,500.

2 – For homes worth between $500,000 and $1,500,000

On these, you need 5% down for the first $500,000 plus 10% on the portion above that.

For example, if the home is selling for $900,000, you need $25,000 as your 5% down payment for the first $500,000. Added to that, you need an additional $40,000 which is 10% of the additional $400,000 of your purchase price. As such, your total minimum down payment is $65,000.

3 – For homes worth over $1.5 million

If you’re buying a home for over $1,500,000, you need a minimum of 20% down. If your purchase price is significantly higher, you might even need a bit more, as many lenders have a sliding scale for luxury properties. This is something to discuss with your mortgage professional so that you can determine where your property comes in.

Qualifying for a mortgage with 5% down

To qualify for a mortgage with a minimal down payment, lenders and default insurers will evaluate:

1 – Your credit score

A good credit score (typically 680 or higher) improves your chances of approval and getting a better rate.

2- Your qualification ratios

Lenders assess your debt servicing ratios to ensure you can afford the mortgage payments. They also want to see that you can comfortably manage to pay your property taxes, your condo fees, and your utilities, as well as any other debts you are liable for.

3 – Your income and job stability

Stable employment – having been at your job at least two years – and consistently increasing income make you a stronger applicant. If you are self employed, the two year track record of income is especially important. If you’re weak in this area, you might benefit from adding a co-signer to your application.

Pros and cons of buying with 5% down

Pros:

✅ Get into the housing market sooner, rather than sitting by while home prices increase
✅ Keep a savings buffer for other expenses or emergencies
✅ Build home equity instead of paying rent

Cons:

❌ Higher mortgage payments due to a larger loan amount
❌ Default insurance premiums are added to your cost, because your mortgage falls into the high ratio category

Buying a home with 5% down is a great option for many Canadians, not just first-time homebuyers

It’s important to understand the requirements, costs, and long-term impact. Whether you’re a first-time homebuyer or looking to purchase a second home, understanding your financing options is crucial. If you’re considering homeownership with a low down payment, working with a mortgage broker can help you find the best mortgage solution for your needs.

Thinking about buying a home with 5% down? Let’s talk!

I can help you determine your eligibility, explore mortgage options, and secure the best rate for your situation. Reach out today to get started!

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