There’s a lot to think about when it comes to buying a new home, but one of the first things you’ll need to figure out is the down payment. You’ll need to come up with this before the home-buying process can begin.

But how do you know how much you’ll need? Let’s break it down using a few real-world examples that’ll give you a much clearer idea of how to get started.

The Basics

The law requires you to put down at least five percent of the home’s value as a down payment if the cost of the house is less than $500k. Sterling’s Evolve line of homes start from $289k, so we could use around $300k as an average price for a starter home. This means that to start, the minimum you’d need for a down payment would be $15,000.

However, putting down a larger amount will put you at much more of an advantage in the long-term. Any down payment under 20% requires you to pay Mortgage Default Insurance, also known as CMHC Insurance. In our $300k home example, if you put down a 5% down payment, you’d pay an additional $11,400 in Mortgage Default Insurance. With a 10% down payment, you’d pay an additional $8,370. With 20% you’d pay no extra insurance.

The cost of the Mortgage Default Insurance is generally included in your mortgage payments. For this example, we’ll assume a fairly typical 25-year amortization period, 2.25% interest and a 5-year fixed-rate mortgage. In this instance your mortgage cost  would be:

• 5% down payment: $1,291/month
• 10% down payment: $1,213/month
• 20% down payment: $1,045/month

How Long Will It Take To Save For A Down Payment?

Naturally, the exact time it’ll take you to save for a down payment will vary from person to person, depending on your own unique financial situation. However, according to Mortgage Professionals Canada, it takes the average person around 100 weeks to save up for a down payment. Let’s take a look at some of the different types of homes Sterling has to offer so that you can figure out how much you’d need for your own personal situation.

Townhomes

Sterling’s townhomes start from $274,800, so if you were to purchase the most affordable plan, your minimum down payment would be $13,740.

To avoid paying mortgage insurance, you would have to put down the 20% down payment, which would be $54,960.

Duplexes

Our duplexes start from $339, 900, so in this case, you’d be looking at a minimum down payment of $16,995, and to avoid mortgage insurance the down payment would be $67,980.

Laned Homes

Laned homes are one of our most affordable models, starting at $289,900, which means for a 5% deposit you could get started with just $14,495, and for a 20% down payment, you’d need $57,980.

Front-Attached Homes

Our larger, front attached homes start from $349,900, which would mean $17,495 as a minimum down payment, and $69,980 to hit the full 20%.

It’s a little harder to say exactly what your monthly mortgage payments would be in each of these instances, as it can vary depending on the amortization period, interest rates and terms of your mortgage that you agree to with your lender. However, if you need a more specific breakdown you can run all your information through an online mortgage calculator that’ll give you a breakdown tailored for you.

Some Exceptions To The Rules

The rules we’ve outlined above will help you out in the vast majority of cases, but there are a few exceptions that you should be aware of. For example, as we mentioned above, the down payment minimum is 5% for homes under $500k. However, if the house is above this threshold you’ll need a minimum of 5% for the first $500k of the home’s value, and a minimum of 10% for the remainder. So for example, if you were buying a $750k home, the minimum down payment would be:

• 5% of the initial $500k = $25,000
• Plus 10% of the remaining $750k = $25,000

So your grand total for the minimum down payment would be $50,000.

There are also a few exceptions if you’re planning on purchasing a rental property. For instance, if you want to put down less than 20% on a rental property you must plan on occupying one of the units yourself, the property must be worth less than $1 million and the property can only have a maximum of four rental units.

An example of this would be if you wanted to buy a duplex and live in one of the units yourself while renting the other. The above rules still apply, however, so you can only pay a 5% deposit if the building costs less than $500,000.

Getting a down payment can seem like a challenge, but with proper planning, it becomes much easier. Knowing how much you’ll need for your home is the first step in the process. Get in touch with us today to see how we can help you get started.

Originally published June 11, 2018, updated June 2, 2020

Photo credits: calculating