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A down payment is a general requirement to secure a mortgage in Canada, with the minimum being 5% of the home price. Unfortunately, coming up with the funds for a sizable down payment can be difficult, especially when you have other bills and debts to pay.
If saving up for this kind of money proves to be a challenge for would-be homebuyers, perhaps borrowing the funds may be an option. Find out if you can borrow money for a down payment and what type of options exist.
Many lenders will let you borrow money for a down payment, as long as you pass their minimum requirements. A down payment can be a significant amount, so you’ll usually need a good income, credit score, and payment history to qualify for a decent loan.
You must show the lender that you have the financial aptitude to pay back your borrowed funds on time. In Canada, the minimum down payment is…
There are numerous sources to borrow money for a down payment in Canada. Here are a few down payment borrowing sources for Canadians to consider looking into.
A line of credit is a unique loan product that works somewhat like a credit card in which you withdraw funds on credit – up to your assigned limit – and pay interest only on the portion used. Once that money is paid back, you can borrow that money, again and again, paying only interest on the amount withdrawn.
Homebuyers may borrow against their line of credit in order to get the money needed to come up with a decent-sized down payment for their mortgage. However, it cannot be from the same financial institution that the mortgage is being obtained. Moreover, such an option should be exercised with caution in order to reduce any risk associated with overleveraging.
A personal loan may be an option as a source of down payment funds, but usually only if your credit score and financial history are healthy. That’s because a lender will want to ensure that you are financially capable of handling additional debt, especially if you’re planning to take out a mortgage for a home purchase.
If you are considering taking out a personal loan to borrow for a down payment, be aware that this will add to your debt and affect your debt-to-income ratio, which can make it tougher to get approved for a home loan.
Amount | Rate | Availability | Products | ||
![]() Loans Canada | Varies | Varies | All of Canada | - First mortgage - Refinancing - Renewal - Lender switch - Home equity loans | Get Started |
![]() Neo Mortgage | Varies | 4.64% | All of Canada except Quebec | - First mortgage - Refinancing - Renewal | Get Started |
![]() Alpine Credit | $10,000+ | Based on equity | All of Canada except Quebec | - Home equity loans | Get Started |
![]() Mortgage Maestro | $10,000+ | 4.45%+ | All of Canada except Quebec | - First mortgage - Refinancing - Renewal - Line of credit (HELOC) - Reverse mortgage | Get Started |
![]() Homewise | Varies | Varies | BC, AB, MB ON, | - First mortgage - Refinancing - Renewal - Lender switch | Get Started |
![]() Fairstone | Up to $50,000 | 19.99% to 24.49% | All of Canada | - Home equity loans | Get Started |
It is unlikely that your mortgage lender will accept your credit card as a down payment for a home. Most lenders do not accept credit cards as payment and generally require your down payment funds to be in your bank account for 60 to 90 days. Moreover, credit cards generally don’t have a high enough credit limit for a down payment. For example, 59% of Canadians have a credit card limit of less than $10,000, whereas a 5% down payment on a $600,000 house (approximate average home price in Canada) is $30,000.
The federal government offers down payment assistance in the form of the Home Buyers’ Plan. This program allows Canadians to borrow as much as $35,000 from their RRSPs to be put toward a down payment on the purchase of a home.
The great thing about this plan is that you have 15 years to repay your RRSP funds before being taxed on it. If you pay back all the money borrowed before this 15-year period is up, the funds are non-taxable.
There are eligibility requirements for the Home Buyers’ Plan. You must:
Borrowing money for a down payment comes with many positive aspects, including:
Borrowing money for a down payment has some downsides too, such as:
Not ready to borrow money for a down payment? Check out these alternatives:
If you’re lucky, a loved one may give you money for a down payment as a gift. However, before you can use that money as a downpayment, you’ll usually have to provide the lender with a gift letter that outlines the following:
Rather than borrowing money for a down payment, consider purchasing a less expensive home. While it’s tough to find these days, buying a smaller or older home might be more affordable. This way, you can fix the property up over the years and potentially sell it for a higher price later on.
Instead of borrowing money for a down payment, consider putting off your home purchase till you’ve saved enough for a down payment. Your home should have everything you want, including a fair price. Plus, a higher down payment can lead to lower mortgage payments and help you avoid becoming house poor.
Ideally, you should have taken the time to save up for a down payment on a home without having to borrow funds. That said, it can be a real struggle to come up with the amount of money needed for a decent down payment amount. When all else fails, there are ways to borrow the funds needed to come up with a down payment for a home purchase. Just be sure to speak with a financial advisor or mortgage specialist before choosing which route to take to make your dreams of buying a home a reality.
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