Your Down Payment Options When Purchasing a House in Edmonton, Canada

Buying a house is one of the most significant financial decisions you'll make, and unless you’re paying cash, a down payment will be a key part of the process. If you're planning to buy a home in Edmonton, Canada, understanding your down payment options is crucial to making informed choices and securing your future property.

Whether you're saving up or exploring alternative options, this comprehensive guide will walk you through everything you need to know, from minimum down payment requirements in Canada to traditional and non-traditional ways to fund your home purchase. By the end, you'll have a clear grasp of your options and how to take the next step toward homeownership.


 

Key Highlights

Before we get into the specifics, here are a few quick facts about down payment requirements in Canada to guide your decisions:

  • Minimum Down Payment in Canada: The rules vary depending on the price of the property, starting as low as 5%.
  • Impact of Down Payment Size:
  • Larger down payments often mean lower monthly payments, reduced interest, and better mortgage rates.
  • Small down payments may require mortgage insurance, increasing the overall cost of your home.

Having a variety of payment options can make buying a home more accessible. Keep reading to see how traditional and non-traditional down payment choices could work for you.


 

Down Payment Requirements in Canada

Minimum Down Payment Based on Home Prices

Depending on the price of the home you’d like to buy, here’s what you’ll need to prepare in Canada, including properties in Edmonton:

  • Homes under $500,000: Minimum 5% down payment. For example, for a home priced at $400,000, you’ll need at least $20,000.
  • Homes between $500,000 and $999,999: 5% on the first $500,000 and 10% for the portion above $500,000. For instance, a home priced at $750,000 would require a $50,000 down payment.
  • Homes $1 million and above: A 20% down payment is required, as mortgage insurance is not available for homes in this price range.

Mortgage Insurance and Interest Rates

Homes purchased with less than a 20% down payment require mortgage loan insurance via programs like CMHC. While this allows you to buy with less upfront, it increases your overall borrowing cost.

If you can afford to pay more than the minimum, it can reduce your interest rates and monthly payments, leaving more room in your budget for other financial priorities.


 

Traditional Down Payment Options

Traditional down payment methods are often the first choice for homebuyers. Here are a few tried-and-true options for funding your home purchase in Edmonton:

1. Savings and Investments

Your personal savings or investments are the most straightforward way to fund a down payment. If you’ve been saving in a Tax-Free Savings Account (TFSA), now’s the time to take advantage of its tax-free benefits.

Additionally, the recently introduced First Home Savings Account (FHSA) allows Canadians to save specifically for their first home purchase. Contributions are tax-deductible, and the growth is tax-free, making it a valuable tool for aspiring homeowners.

2. RRSPs (Home Buyers’ Plan)

The Home Buyers’ Plan (HBP) allows first-time buyers to withdraw up to $35,000 from their RRSP ($70,000 for a couple) to be used as a down payment.

  • The Perks: The withdrawal is tax-free, provided the funds are repaid to your RRSP over 15 years.
  • Pro Tip: Ensure you've contributed to your RRSP ahead of time to maximize this benefit.

2A. First Home Savings Account

  • The First Home Savings Account (FHSA) is a new savings tool designed to help Canadians save for a down payment and make homeownership more accessible. Eligible individuals can contribute up to $8,000 per year, with a lifetime limit of $40,000, and all contributions grow tax-free. Plus, since the FHSA is a registered savings plan, contributions can also lower your taxable income for the year they’re made. That said, the FHSA has stricter rules compared to accounts like the TFSA. If you don’t use the funds to buy a home within 15 years, the money can be transferred tax-free into your RRSP. However, if you withdraw the funds for anything other than purchasing a home, the amount will be taxed at your regular income tax rate.

3. Non-Repayable Gift from an Immediate Relative

Receiving a non-repayable gift from a family member can help you secure your down payment. However, lenders will require documentation confirming the gift is, in fact, a gift and not a loan.

4. Proceeds from the Sale of Another Property

If you currently own a home, you could use the proceeds from its sale to fund your next down payment. This option often provides a significant upfront amount, which could help you secure a larger property or better terms.


 

Non-Traditional Down Payment Options

Can't rely on traditional methods? Here’s how non-traditional options can still make homeownership possible in Edmonton:

1. Borrowed Funds

Some lenders allow you to borrow all or part of your down payment. Typically, this requires a strong credit score and favorable debt service ratios.

  • Keep in Mind: Borrowed funds factor into your Total Debt Service (TDS) calculation, so ensure the additional monthly payment won’t strain your finances.

2. Rent-to-Own Agreements

Rent-to-own programs allow you to gradually build equity in a property. Payments above the market rent are credited toward your future down payment. While this is a popular option for those without upfront funds, it’s essential to carefully review the details of the contract to protect yourself.

3. Lender Cashback Incentives

Certain lenders offer cashback incentives, where they provide a percentage of your mortgage amount upfront to be used towards your down payment.

  • Important Note: Cashback mortgages often come with higher interest rates. Carefully evaluate whether this option saves you money in the long run.

 

Frequently Asked Questions

What is the minimum down payment required in Canada?

For homes below $500,000, a minimum of 5% is required. Homes between $500,000 and $999,999 require 5% for the first $500,000 and 10% for the remaining amount. Any home priced at $1 million or more requires a minimum down payment of 20%.

Are there government incentives for first-time home buyers?

Yes! Programs like the First-Time Home Buyer Incentive and the Home Buyers’ Plan can provide financial support to reduce upfront costs and make homeownership more achievable.

What is a cashback mortgage?

A cashback mortgage provides you with a lump sum of money upfront to cover expenses such as your down payment. However, it comes with higher interest rates, so it’s important to calculate the long-term savings versus costs before committing to this type of mortgage.


 

Explore Your Down Payment Options Today

Deciding how to fund your down payment is a crucial step in buying a home. With the variety of traditional and non-traditional options available, Edmonton homebuyers have more flexibility and support than ever before.

If you're feeling unsure about which option best suits your financial situation, we’re here to help. Reach out to a mortgage expert today for personalized advice and guidance. 

 

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