Mortgage Downpayments

Buying a home is an experience that many Canadians dream about, but there often is one major obstacle that must be overcome: saving up for the new home purchase. Many Canadians will finance a large portion of their real estate purchase with a mortgage loan, and this makes it faster and easier for Canadians to become homeowners. However, most will generally need to come up with at least five to 20 per cent of the sales price as a down payment. In addition, closing costs can also add up, and this can add on to the total amount of up-front money that Canadians will need to bring to the closing table with them. Therefore, saving up for a down payment and closing costs is a necessity for those who are interested in buying Canadian real estate, and it can take most individuals a considerable amount of time and effort to save the full amount of money needed. Thankfully, there are several different methods that you can employ to save for your home purchase.

Existing Home Equity

First, if you are already a home owner and are planning to sell your existing home when buying a new home, you can use your equity in your existing home as a down payment. In most cases, your existing home will need to be sold, and you will need to have cash in hand before you can close on your new home loan. However, this is a source of funds that many existing homeowners can benefit from. You can speak with a real estate agent to learn more about the value of your home and to estimate the equity you have available.

Personal Savings

If you do not have enough home equity for the full amount of down payment and closing costs, or if you are not a first-time homebuyer, you may need to save money to obtain the full amount of funds needed. Those who are saving their money in a personal savings account to use as a down payment should consider the benefits of an automatic funds transfer from your employer into your savings account with each paycheck. This way, savings will be automatic, and you will not have to risk dealing with human error. Saving money is most effective when regular savings are planned for in a personal budget, and when savings are completed on a regular basis.

A Gift

Some lenders will allow a gift of funds from a close relative. They may have a limit on the amount of funds that can gifted, and the giver of the funds may need to sign a statement stating that the funds are not going to be repaid by the recipient. There may also be limits on the total loan amount, the monthly payment for the mortgage loan and other factors. If you plan to accept a gift of funds from a family member, it is important that you work with your lender to review the requirements and to structure the gift so that it fully meets the lender's requirements.


Canadians may also be able to use funds in their Registered Retirement Savings Plan, or RRSP. This is a retirement account that most Canadians participate in, and most first-time homebuyers may be eligible to use at least a portion of the funds in their RRSP as a down payment. For individuals, up to $25,000 from the RRSP may be used for this purpose. For couples, the maximum limit is $50,000. The funds must be repaid within 15 years, or the amount that was withdrawn from the RRSP will be subject to taxation. Furthermore, the funds must have been in the RRSP for at least 90 days before withdrawing them.

How Much Do You Need?

Now that you are aware of some of the options available to you as sources of down payment funds and closing costs funds, it is important to consider how much money you really need. You can easily take a closer look at what real estate prices for the type of home that you need, and you should also review loan programs available. Then, use a mortgage calculator to ensure that the mortgage you would need to apply for is suitable for your budget. This basic planning effort is important so that you can develop a realistic estimate of total down payment and closing costs funds that you need to save up. With real estate prices in Canada at their current level, a modest down payment and closing costs can add up to a rather high total amount of funds needed for a home purchase. Many people who are interested in buying a new home may be overwhelmed by the figure, but it is important that you develop a plan to help you save up the funds that you need.

Developing a Plan

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After you have an approximate estimate regarding how much money you need to save up, take stock of the funds that are currently available to you. Consider your savings and retirement account balances and the equity in your home. Also, consider talking to a relative who may be interested in giving you a gift for a purchase. The difference between the total amount of funds you need and the total funds you currently have available is the approximate amount of money you need to save. Consider establishing a regular savings plan that helps you to achieve your goals of saving up the remaining funds you need. With your plan in place, you can most easily accomplish your goals.

You should keep in mind that as you get closer to reaching your savings goals, you should consider speaking with a mortgage lender. Your mortgage lender can review your financial situation and can help you to firm up the amount of money that you will need to close on your loan. Once you have the full down payment amount saved up, you can get pre-qualified for a mortgage and can begin hunting for the home that is right for you.

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