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Are you looking to buy a house in Ottawa, Ontario, Canada and wondering how much you need for a down payment? In this blog post, we’ll go over the down payment requirements in buying a home in Ottawa, Ontario and provide some tips on saving for a down payment.
First, let’s talk about the difference between a deposit and a down payment. It seems like a lot of people get confused between these two.
Deposit and Down Payment
In real estate in Ontario, a deposit is a sum of money that is given by the buyer to the seller as a show of good faith when making an offer on a property. It is usually a small percentage of the purchase price. The deposit is typically held in trust by the seller’s real estate agent or lawyer until the closing date, at which point it is applied towards the purchase price of the property.
A down payment, on the other hand, is a larger sum of money that the buyer is required to pay at the time of closing. It is typically a percentage of the purchase price and is used to reduce the amount of the mortgage loan that the buyer needs to take out. The down payment is separate from the deposit and is typically a larger amount.
Minimum Down Payment Needed to Buy a House or Condo in Ottawa, Ontario
In Canada, the minimum down payment for a home purchase is 5% of the first $500,000 of the purchase price and 10% on the portion of the purchase price above $500,000 and 20% for $1,000,000 and above. This is known as the “minimum down payment rule.” For example, if you are buying a $700,000 home, the minimum down payment would be 5% on the first $500,000 ($25,000) and 10% on the remaining $200,000 ($20,000), for a total of $45,000, which is actually 6.4% of the $700,000 purchase price.
However, it’s important to note that this is the minimum requirement, and many lenders may require a higher down payment. This is especially true for those with less than 20% down payment, as they may be required to purchase mortgage default insurance. This insurance protects the lender in case the borrower defaults on their mortgage payments.
There are a few exceptions to the minimum down payment rule. For example, if you are a first-time homebuyer and meet certain criteria, you may be eligible for the First-Time Home Buyer Incentive (FTHBI). This program allows you to put down as little as 5% on a new home and receive a shared equity mortgage from the government for up to 10% of the home’s value.
First Time Home Buyer’s Programs Available in Canada
There are several programs available in Canada for first-time home buyers, which can help make it easier for them to purchase a home. Here are a few examples:
- First-Time Home Buyer Incentive (FTHBI): This program is offered by the Government of Canada and is designed to help make it more affordable for first-time home buyers to purchase a home. Under the program, eligible home buyers can receive a 5% or 10% shared equity mortgage for a newly constructed home, or a 5% shared equity mortgage for an existing home. Find more information about the program here.
- Home Buyer’s Plan (HBP): This program allows first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to use as a down payment on a home.
- Land Transfer Tax Refunds: Many provinces offer land transfer tax refunds for first-time home buyers. This can help to offset the cost of the land transfer tax, which is a tax that is paid when a home is purchased.
- Affordable Housing Programs: Many municipalities and provinces offer affordable housing programs for first-time home buyers, which can include down payment assistance, low-interest loans, and other incentives.
It’s always a good idea to check the specific programs and eligibility criteria of Canada Revenue Agency and respective provinces, as these programs and the rules around them can vary depending on where you live.
Saving for a Down Payment
So, how do you save for a down payment on a house in Ontario? Here are a few tips:
- Create a budget: The first step to saving for a down payment is to create a budget and identify areas where you can cut expenses. Look for ways to reduce your monthly bills, such as negotiating your cable or internet plan or switching to a cheaper cell phone provider.
- Save automatically: Set up automatic transfers from your checking account to a savings account designated for your down payment. This will help you save consistently without having to think about it.
- Use a down payment assistance program: There are various down payment assistance programs available in Ontario, such as the Land Transfer Tax Refund for First-Time Homebuyers and the Home Buyer’s Plan. These programs can help you come up with the funds for a down payment.
In summary, the minimum down payment for a home purchase in Ontario is 5% on the first $500,000 and 10% on the portion of the purchase price above $500,000. However, many lenders may require a higher down payment, especially for those with less than 20% down. To save for a down payment, create a budget, save automatically, and look into down payment assistance programs.