How Much do You Need for a Down Payment?

Lots of people, especially people who don’t have a lot of extra pocket change, too often brush off the idea of ever being able to get a mortgage – because they don’t have the necessary 20% down payment. So if you find a home and can’t immediately cough up at least 20% of the purchase price, you can forget about it, right? There’s obviously no point in even trying. Well, there is actually. While it might be harder to get a mortgage without a 20% down payment, and you’ll probably end up paying more in the end, you should never deny yourself your dream home just because you don’t think you have enough cash.
You’ll only need a 20% down payment for a conventional mortgage. A conventional mortgage is one that’s set up between you and a lender, with no outside interference from a third party. However, if you don’t have the 20% down payment, you’ll need to apply for a high-ratio mortgage. These mortgages are similar to conventional mortgages, except that you’ll need to pay more for additional mortgage default insurance. This is where the third party comes in, and that’s the Canada Mortgage and Housing Corporation (CMHC.)
The CMHC is the organization that insures high-risk mortgages, or mortgages where only a small amount of the down payment has been paid. This insurance protects the lender in case you default on your insurance, something that’s unfortunately viewed as “more likely to happen” because of the small down payment amount. The CMHC does require a couple of things before they approve the default insurance. The first is that the applicant (you) have a beacon score of 620 or higher. The second is that you still must be able to pay at least 5% of the down payment.
Even if you can get approved for a 5% down payment with mortgage insurance from the CMHC, it’s important to always understand that the more you pay on your down payment, the more you’ll save in the long run. So even if you get approval for the least amount possible, pay as much as you can to save yourself in the future. You’ll already be paying more so, you might as well get that cost down as much as you can.