What You Need to Know Before Buying a Home

One of the most common questions we get is:
“How much do I need for a down payment—and how does it impact my mortgage?”

The answer depends on your specific situation. Below is a clear breakdown of how down payments work and what lenders are looking for.

Understanding Down Payment Types

  1. High-Ratio Mortgage (5% – 19.99%)

If your down payment is less than 20%, your mortgage is considered high-ratio.

  • Mortgage default insurance is required (through providers such as CMHC, Sagen, or Canada Guaranty)
    • This insurance protects the lender—not the borrower
    • The premium is added to your mortgage, not paid upfront

Bottom line: This option allows you to enter the market sooner with less upfront capital.

  1. Conventional Mortgage (20% or more)

With a down payment of 20% or greater:

  • No mortgage insurance is required
    • Lower overall borrowing costs
    • Greater flexibility with lenders and mortgage products

Bottom line: This is typically the most cost-effective approach over the long term.

  1. Flex Down / Borrowed Down Payment

In certain cases, borrowers with strong income and credit may:

  • Borrow their minimum down payment (typically 5%) from an unsecured credit facility

Key considerations:

  • Less common under current guidelines
    • Qualification is stricter due to increased debt servicing

Bottom line: This strategy can work, but must be structured carefully.

Where Can Your Down Payment Come From?

Lenders require clear verification of your down payment source. Below are the most common options:

  1. Savings (Cash Assets)

Includes funds held in:

  • Chequing or savings accounts
    • Investments (TFSA, non-registered accounts, etc.)

Requirements:

  • 90-day account history
    • Clear identification of account ownership

Bottom line: This is the simplest and most preferred source.

  1. Gifted Down Payment

A common solution, especially for first-time buyers.

  • Must come from an immediate family member
    • Must be non-repayable

Requirements:

  • Signed gift letter (we provide this)
    • Proof of transfer into your account

Bottom line: Lenders must confirm there is no repayment obligation.

  1. RRSP Withdrawal (Home Buyers’ Plan)

The Government of Canada allows you to withdraw:

  • Up to $60,000 per person tax-free
    • Repayment period of 15 years

Requirements:

  • RRSP withdrawal documentation
    • Updated RRSP statement

Bottom line: One of the most effective tools for first-time buyers.

Note:
RRSP withdrawals outside of the Home Buyers’ Plan may be subject to withholding tax (up to 30%).

  1. Borrowed Against an Existing Property

If you have sufficient equity in a property:

  • You may refinance or access a HELOC for your down payment

Requirements:

  • Current mortgage statement
    • Confirmation of available equity

Important consideration:

  • Payments from any borrowed funds must be included in your debt servicing ratios, which can reduce your overall borrowing capacity

Bottom line: Common for move-up buyers and investors, but must be structured strategically.

  1. Sale Proceeds from an Existing Property

If you are selling your current home:

  • Net proceeds can be applied toward your new purchase

Requirements:

  • Firm sale agreement
    • Mortgage payout statement
    • Proof of funds

If your purchase closes before your sale:

  • Bridge financing may be required (we can arrange this)
  1. Unsecured Line of Credit

In some cases:

  • Buyers may use an unsecured line of credit for their down payment

Considerations:

  • Must qualify with the added debt
    • Works best with strong income and stable employment

Bottom line: Not suitable for all borrowers, but viable in select scenarios.

Final Thoughts

Your down payment impacts more than just your purchase—it directly affects:

  • Your mortgage options
    • Your monthly payments
    • Your long-term borrowing costs

Every situation is different. The right strategy depends on your full financial picture.

Next Steps

If you’re unsure how to structure your down payment:

Reach out to Lotus Loans & Mortgages.
We’ll walk you through your options and help you build a strategy before you start shopping.

Disclaimer

Mortgage guidelines, lender policies, interest rates, and legal processes in Ontario are subject to change without notice and may vary based on individual borrower circumstances. The information provided above is for general educational purposes only and should not be considered financial, legal, or mortgage advice. All mortgage applications are subject to lender approval, qualification, and current guidelines at the time of submission. We recommend speaking directly with a mortgage professional to review your specific situation and confirm the most up-to-date options available.