For most people buying a home, the down payment conversation starts and ends in the same place: how much do I need, and do I have enough?
Those are reasonable questions. But they’re the beginning of the conversation, not the whole thing. The down payment decisions you make affect your monthly cash flow, your mortgage insurance costs, your qualification amount, your investment flexibility, and your financial position for years after possession day. Treating it as a number to hit rather than a strategy to build is one of the most common and costly oversights I see in the buying process.
Let us give you a complete picture of how down payments work in Canada, where the money can come from, and how to think about the decision strategically rather than just mathematically.
The Minimum Down Payment Rules in Canada
Canada’s minimum down payment requirements are based on the purchase price of the property:
For homes up to $500,000, the minimum is 5% of the purchase price.
For homes priced between $500,000 and $1,500,000, the minimum is 5% on the first $500,000 and 10% on the remaining portion.
For homes over $1,500,000, a minimum of 20% is required across the full purchase price.
It’s worth noting that the $1,500,000 threshold is a relatively recent change. Homes up to $1.5M can now be purchased with less than 20% down, which opened up more of the Canadian market to insured mortgage buyers than the previous $1,000,000 cap allowed.
When your down payment is less than 20%, your mortgage is considered a high-ratio mortgage and requires mortgage default insurance, typically through CMHC, Sagen, or Canada Guaranty.
The insurance premium is calculated as a percentage of the mortgage amount and added to your mortgage balance. It ranges from 2.8% to 4.2% depending on your down payment amount.
This is not a fee you pay out of pocket at closing – it gets rolled into your mortgage – but it does increase your total mortgage balance.
One benefit of an insured mortgage worth knowing: the insurance follows the mortgage, and if you sell and buy again, the premium can often be transferred, meaning you won’t necessarily pay it twice. Interest rates are also normally lower than a non-insured mortgage.
More Down Payment Is Not Always the Right Answer
This is the strategic point most buyers miss, and it’s one we spend a lot of time on with clients.
The instinct to put down as much as possible makes intuitive sense. A bigger down payment means a smaller mortgage, lower monthly payments, and less interest paid over time. All of that is true.
But here’s the other side of that calculation. Real estate is one of the only investments where a lender will let you leverage at a 5:1 ratio. With $100,000, you can control a $500,000 asset. That leverage is a powerful wealth-building tool, and putting more of your own cash into the property than you need to reduces the leverage that makes real estate so effective.
If putting 20% down means draining your savings, leaving yourself with no financial buffer, and closing the door on other investment opportunities, it may not be the right move even if it’s technically available to you. A conversation about the right down payment amount should also include a conversation about what else you’d do with those funds and what your full financial picture looks like after possession.
This is not an argument for putting down the minimum in all situations. Sometimes 20% makes complete sense – particularly if avoiding mortgage insurance is important to you, if you’re investing in a rental property where the insured options aren’t available, or if the monthly payment reduction is meaningful to your budget.
The point is that the decision deserves analysis, not assumption.
Where Your Down Payment Can Come From
Personal savings are the most straightforward source and what lenders prefer to see. Savings sitting in a bank or investment account with a clear 90-day history are easy to document and verify.
The First Home Savings Account (FHSA) is one of the most powerful savings tools the Canadian government has introduced in years, and if you haven’t opened one yet, this is worth paying attention to.
The FHSA is a registered account designed specifically for first-time buyers. You can contribute up to $8,000 per year with a lifetime limit of $40,000. Contributions are tax deductible, which reduces your taxable income in the year you contribute – similar to an RRSP. When you withdraw the money to buy your first home, the withdrawal is completely tax-free. And while the funds are inside the account, any growth is also sheltered from tax.
That combination – tax deduction on the way in, tax-free growth inside, and tax-free withdrawal on the way out – is genuinely exceptional and not available through any other registered account in Canada.
If you don’t end up buying a home, the funds can be transferred to your RRSP or RRIF without using your contribution room. There’s no penalty for not buying.
The FHSA is available to Canadian residents who are at least 18 years old and meet the first-time buyer definition, meaning you have not lived in a home you owned in the four years prior to the purchase.
If you’re even considering buying a home in the next five years, the advice is simple: open an FHSA now and start contributing. The contribution room accumulates whether or not you’re actively saving, and the earlier you open it, the more room you’ll have available when you need it.
The RRSP Home Buyers’ Plan allows first-time buyers to withdraw up to $35,000 from their RRSPs toward a home purchase, tax-free at the time of withdrawal. The funds need to have been in your RRSP for at least 90 days before you withdraw them, and they need to be repaid over a 15-year period starting the second year after the withdrawal. If you don’t repay on schedule, the missed amounts are added to your taxable income that year.
The FHSA and the RRSP Home Buyers’ Plan can be used together, which means a first-time buyer could potentially access up to $75,000 in combined registered funds toward their down payment – $40,000 from the FHSA and $35,000 from the RRSP – with significant tax advantages attached to both.
Gifted down payments from an immediate family member are an acceptable source for most lenders. What’s required is a signed gift letter confirming the funds are a true gift and not a loan, along with proof that the money has been deposited into your account. Undocumented transfers, even from family, can delay or complicate an approval.
Borrowed funds can be used for a down payment in some situations – from a line of credit, personal loan, or other source – but they must be disclosed and the monthly payment on that borrowing gets included in your debt ratios. This affects how much mortgage you qualify for and needs to be factored into the overall affordability picture from the start, not after the fact.
The 90-Day Rule and Why It Matters
Here’s something most buyers don’t know until they’re in the middle of a deal: lenders require a 90-day history of your down payment funds. Statements showing where the money came from, how it accumulated, and that it’s been sitting in your account need to cover the 90 days leading up to your purchase contract date.
Any deposit over $2,500 in that 90-day window needs to be explained. If the funds came from another account, a 90-day history of that account is also required. Statements need to show your full name and account number with no redactions.
This matters most for people who have funds in multiple places – investment accounts, business accounts, international accounts, or cryptocurrency. Moving money around shortly before an application, making large cash deposits, or receiving transfers without a clear paper trail are all things that create complications at the lender level. The source of down payment funds needs to be traceable, documented, and clean.
This catches a lot of buyers off guard, and the sources that create the most complications are ones people don’t think twice about in everyday life. Unverified cash deposits, cryptocurrency conversions without a clear transaction history, proceeds from selling items on Facebook Marketplace or Kijiji, e-transfers – all of these raise flags with lenders and compliance teams. It’s not that the money isn’t real or isn’t yours. It’s that the source can’t be traced and verified, and lenders are required to confirm where every dollar of a down payment came from.
If your down payment includes funds from any of these sources, the solution is documentation and time. Avoid cash deposits where possible, and if cash is unavoidable, be prepared to explain it in writing (and talk with us first!).
If your down payment is coming from sources that need liquidation or transfer, start that process early. RRSP withdrawals under the Home Buyers’ Plan have their own paperwork and timelines. International funds may need currency conversion and documentation.
Business account funds may require an explanation of how the money was generated.
None of these are insurmountable, but they all take time that you won’t have if you wait until you’re already under contract.
What Most Buyers Forget to Budget For
The down payment is not the only cash you need at closing. This catches buyers off guard more often than anything else in the purchase process.
Closing costs include legal fees, land title transfer fees, a home inspection, property tax adjustments, and title insurance. As a general estimate, budget 1.5% to 4% of the purchase price for closing costs depending on the property and circumstances. For a $600,000 home, that’s $9,000 to $24,000 in addition to your down payment, depending on your province.
Moving costs and immediate expenses after possession – things you need for the home right away – are real costs that need to be accounted for in your overall budget.
An emergency fund needs to survive the purchase intact. Draining every dollar of savings into a down payment and closing costs leaves you financially exposed in the months after possession when unexpected repairs or expenses are most likely to surface.
The Strategic Conversation Worth Having
The down payment decision is connected to your mortgage amount, your monthly cash flow, your investment options, and your financial resilience after you take possession. Getting the number right means looking at all of those things together, not solving for one of them in isolation.
If you’re in the planning stages of a purchase, reach out for a Discovery Call before you start saving toward a specific number. Knowing what the strategy should look like from the start means you’re building toward the right target, using the right accounts, and avoiding the documentation surprises that slow down approvals.
Cheryl Sanguinetti is a Calgary-based Mortgage Broker and the founder of Cheryl Sanguinetti Mortgages. She specializes in helping homeowners, investors, and self-employed Canadians build mortgage strategies that support long-term financial goals.