What is a Down Payment?

A Down Payment is a lump sum of cash that is given to a bank to show that you are seriously committed to your home purchase.  A down payment demonstrates to the bank that you have been responsible enough to save up this amount of money and that you are confident enough in the property (the house) to invest your money into it. 

The amount of your down payment is subtracted from your purchase price to determine the full amount of money needed for your mortgage.  In other words, if you buy a house for $100,000 and put $20,000 down (as your down payment) you will need an $80,000 mortgage ($100,000-$20,000=$80,000).

In Canada, you may put as little as 5% of your purchase price down as your down payment.   ie. If the house you want to buy is $100,000, make sure that you have at least $5,000 in savings to use as your down payment.  (If you wish to buy a house but you have no money at all to use as a down payment, there are other options as well, which I will write about at a later date.  For the time being, so that we do not complicate matters, I will say that the best option for all home buyers is to have at least 5% to put down.) 

There are two classifications of mortgages: High-Ratio Mortgages and Conventional Mortgages.

If you put less than 20% down, your mortgage is considered a HIGH-RATIO MORTGAGE.

If you put 20% or more down, your mortgage is considered a CONVENTIONAL MORTGAGE.

Stay tuned for more information on these two classifications.