10 Nov

Do You Need A Down Payment ?


Posted by: Jenni MacDonald

If you are purchasing a personal home or a duplex that you are going to live in, you will need a down payment of at least 5% of the purchase price.  Triplex and fourplex properties (in which you will live), requires at least 10% of the purchase price for the down payment.  A property with more than four units is typically considered a Commercial property.  If you have questions about Commercial properties, please feel free to contact me directly.

When purchasing a property, lenders require 3 months of Bank Statements showing the name of the borrower, the transactions, and the balance. These statements can come from a bank account, a Tax-Free Savings Account (TFSA) an investment account, and/or a Registered Retirement Savings Plan (RRSP).

You are also allowed to have all or some of your down payment gifted to you.  The gift must be from a direct relative (grandparent, parent, sibling, child).  A gift letter is signed by both parties at the time a mortgage is being applied for.  A bank statement showing the funds deposited into the purchaser’s account is required at least 15 days before the closing date.

But What If You Do NOT Have a Down Payment from Any of these Sources?

If you are a first-time home-buyer, it might be a good idea to get an RRSP loan if you want to purchase a house in 2021.  A financial planner at a bank or an investment company can help you apply for an RRSP loan.

The benefit of applying now is that you can claim the RRSP contribution that you “buy” with your loan on your 2020 tax return to get a tax credit when you file your 2020 taxes.  This could result in getting a refund on your taxes rather than owing to them.  Your RRSPs will have to be invested for at least 90 days in order to use them for your down payment in 2021.  Most lenders will allow you to take out the RRSP for down payment purposes and continue to pay the RRSP loan payments each month.  Voila!  You have funds for a down payment!

As a first-time home-buyer, the government allows you to use a large amount (up to $35,000 per person – $70,000 for a couple) of your RRSPs, without penalty, for your down payment and closing costs. This plan is called the First Time Home Buyers’ Plan (HBP). You have 15 years to pay them back or claim 1/15 as income each year on your personal taxes.  You must have an accepted offer on a house in order to release the RRSP using this plan.

What is a “first-time home-buyer”?  There is an obvious answer, of course.  But there are other definitions that the government accepts as well.  You are considered a “first time home buyer” if:

  1.  You have never owned a home before or;
  2. You did not occupy a home that you or your current spouse or common-law partner owned for at least the last 4 years or;
  3. You live separate and apart from your spouse or common-law partner for a period of at least 90 days as a result of a breakdown in your marriage or partnership.


If you are interested in finding out more, I’d be happy to look at your mortgage options with you.