How Much Down Payment Should I Put on a House?

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Imagine this: after a great deal of house-hunting, you’ve finally found the one. You’re excited to renovate and paint and start life in your new place. But what about the down payment? 

Whether you’ve been searching through the many houses for sale in Calgary SE, or have found one on the opposite side of the city, it’s imperative that you know everything you can about down payments and owning a house. 

And if you’re not completely up to date, you don’t have to worry - that’s what we’re here for! Whatever you need to know about real estate, our Calgary House Finder professionals can provide you with up-to-date information and great advice.

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Is it Better to Put 20% Down on a House?

Contrary to popular belief, homebuyers are not obligated to put a 20% down payment on every house. In some cases, you can get away with pay a much lower amount

If you choose to make a lower down payment on your new home, you’ll often have to purchase mortgage loan insurance. This is an insurance policy designed to protect the mortgage lender/titleholder. 

The policy comes into effect when the borrower (i.e., the homebuyer) fails to make payments, passes away, or cannot meet the contract’s requirements for other reasons. A mortgage insurance premium can range from 0.6% to as much as 4.50% of your mortgage.

The Deposit

The deposit is a separate amount of money from the down payment. The deposit on a house goes to the seller when you make an offer. It’s a sign that you’re serious about buying the house and won’t back out. The deposit is part of the down payment when the sale on the house closes.

The Minimum Down Payment Based on the Purchase Price 

Without the obligatory 20% down payment, first-time and experienced homebuyers can put the following down payments on their home, depending on the purchase price:

  • For a house priced at $500,000 or less, the minimum down payment is 5%.
  • For a house priced from $500,000 to 999,999, the minimum down payment is 5% for the first $500,000 and 10% on the remaining amount.
  • For a house priced at $1 million and higher, a 20% down payment is required.

Note: According to the Government of Canada, lenders may request a larger down payment if buyers are self-employed or have bad credit. Additionally, in some cases buyers may still need to purchase mortgage loan insurance even if they provide a 20% down payment.

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Is it Better to Put a Larger Down Payment on a House?

In many cases, it makes financial sense for buyers to put a larger down payment on a house, because it means they won’t need to borrow as much money for their mortgage, and they will get access to lower interest rates. 

Buyers are always encouraged to purchase a home that’s under budget, so they can use the left-over amount for other expenses, such as emergency repairs. It makes things easier in the long run. 

A smaller down payment can leave you with more money in your pocket in the near-term, but will raise the monthly mortgage payments over the long-term. Some perks to making a larger down payment include:

  • Lower monthly costs: A larger down payment means your monthly mortgage payment will be lower, despite the length of the payment term.
  • Better chance of borrowing money against your home’s equity: If something urgent comes up, like medical expenses or renovations, second mortgages can help you borrow against the value of your home. The more existing equity you have, the larger you can borrow when the need comes up.

Have questions? Calgary House Finder is at your disposal!

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Learn more about down payments and mortgage payments, or browse our Calgary houses for sale any time. 

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