Downpayment 101

November 5, 2025 | Posted by: Matt Broom-Hall

Downpayment 101: What Is My Minimum Down Payment and How Does It Affect My Application?

Say Hello to Smart Down Payment Strategies : Where Knowledge Transforms Your Home Buying Power.

Let's cut straight to the chase: understanding your down payment options isn't just about meeting minimum requirements : it's about strategy. I'm taking you behind the scenes of Canadian mortgage financing, giving you the insider tools and powerful strategies to navigate your down payment with confidence.

Whether you're a first-time buyer wondering how much cash you need upfront, or an existing homeowner looking to leverage your equity, this comprehensive guide will transform how you think about down payments and their impact on your mortgage application.

The Three Types of Down Payment Scenarios in Canada

Understanding these three categories is your gateway to long-term financial success. Each scenario comes with distinct advantages, requirements, and implications for your mortgage terms.

High Ratio Mortgages (5% - 19% Down Payment)

When you put down between 5% and 19% of the purchase price, you're entering high ratio mortgage territory. Here's what this means: because your loan amount compared to the home's value is greater than 80%, banks require you to purchase default mortgage insurance.

This insurance protects the lender in case of default, and here's the key detail most buyers miss : the insurance premium is added to your total mortgage amount. You're not paying it upfront; it's rolled into your monthly payments over the life of your mortgage.

Don't let this discourage you. High ratio mortgages have opened the door to homeownership for countless Canadians who couldn't wait to save 20% down. With Alberta's current market conditions and rising rents, getting into the market sooner rather than later often makes financial sense.

Conventional Mortgages (20% or More Down Payment)

Put down 20% or more, and you've entered conventional mortgage territory. No insurance premium required because your loan-to-value ratio is 80% or less. This translates to lower monthly payments and significant long-term savings.

But here's the strategic question: is waiting to save 20% down always the right move? With Alberta's appreciating market and current rental costs, sometimes the opportunity cost of waiting outweighs the insurance premium savings.

Flex-Down Mortgages (Less Than 5% Down)

This is where things get interesting. Borrowers with strong, stable income may be able to borrow their 5% down payment from an unsecured line of credit. These mortgages aren't as common as they used to be, but if you have solid income and you're just struggling with the down payment savings, this strategy might work for you.

The key qualifier here is strong income. Lenders need to see that you can comfortably service both your mortgage payments and the line of credit used for your down payment.

Where Can Your Down Payment Come From?

Beyond the rate, your down payment source affects your mortgage application process. Let's explore each option and what lenders need to see.

Cash Down Payment (Savings, Chequing, Investments)

This is the most straightforward option, but it comes with verification requirements. Any cash down payment needs 90 days of account history. We'll need bank statements showing your name, account number, and three months of transaction history to prove ownership and source of funds.

Pro tip: Start organizing these documents early. Clean, well-documented savings history makes the application process smoother and faster.

Gifted Down Payment (From Direct Family Members)

Family gifts are a beautiful thing, but they must come without any repayment obligation. This isn't just a handshake agreement : it requires a formal letter signed by both parties indicating this is a 'non-payback' transaction.

We'll provide you with the proper gift letter template to ensure compliance. The key word here is direct family member : parents, grandparents, siblings typically qualify, but the definition can vary by lender.

RRSPs: Your Secret Weapon

Here's one of Canada's most incredible programs: the Home Buyers' Plan allows you to withdraw up to $60,000 from your RRSPs tax-free toward your down payment, with 15 years to pay it back.

Important clarification: You can pull RRSP funds for your down payment even if you're not a first-time home buyer. However, if you're not eligible for the Home Buyers' Plan, the financial institution will withhold 30% for taxes. Not ideal, but totally possible if it gets you into your dream home.

The verification process is straightforward : we'll need the withdrawal form you sign at your bank and your RRSP statement.

Borrowed Against an Existing Property

If you own property with sufficient equity, you can leverage that equity for your down payment. We'll need mortgage statements showing your current balance and available equity to confirm this option works for your situation.

This strategy is particularly powerful in Alberta's current market, where many homeowners have built substantial equity over recent years.

Sale Proceeds from an Existing Property

Selling your current home to fund your new purchase? We'll need the firm sale contract, current mortgage statement, and confirmation of sale proceeds deposited into your account.

Here's where timing gets critical: if your sale closes after your purchase, you might need bridge financing to fund your down payment in the interim period. No problem : we've got solutions for that scenario.

Unsecured Lines of Credit: The Flex-Down Strategy

As mentioned earlier, borrowers with strong income can qualify to borrow their 5% down payment from an unsecured line of credit. This strategy isn't for everyone, but with increasing rents and competitive mortgage rates in Alberta, more borrowers are choosing to stretch into homeownership rather than continue renting.

If you're considering this approach, reach out to us. We can run the numbers and determine exactly what you'd qualify for if you're borrowing your down payment.

How Your Down Payment Affects Your Application

Your down payment doesn't just determine your mortgage amount : it influences your entire application strength. Here's what lenders consider:

Risk Assessment: Larger down payments signal lower risk to lenders. You're investing more of your own money, which typically translates to better rates and easier approval.

Insurance Requirements: As we've covered, less than 20% down triggers mortgage insurance requirements, affecting your monthly payments and total borrowing costs.

Equity Position: Your initial equity position affects your flexibility for future refinancing, home equity lines of credit, and potential sale scenarios.

Cash Flow Impact: Higher down payments mean lower monthly payments, improving your debt-service ratios and overall financial flexibility.

Strategic Considerations for Alberta Buyers

Alberta's market presents unique opportunities right now. With competitive rates and strong employment in key sectors, the question isn't always whether you can afford to buy : it's whether you can afford to wait.

Consider this scenario: You're paying $2,000 monthly in rent while saving for a larger down payment. Meanwhile, you could potentially own for similar monthly costs with a smaller down payment today. The opportunity cost of waiting might outweigh the insurance premium savings.

Your Next Steps

Every situation is unique, and the right down payment strategy depends on your specific circumstances, goals, and market timing. Whether you're exploring flex-down options, maximizing RRSP withdrawals, or coordinating complex sale-and-purchase scenarios, having the right guidance makes all the difference.

Ready to explore your down payment options? Let's connect and create a personalized strategy that gets you into your dream home with confidence. Our zero-cost consultation will help you understand exactly what you qualify for and which down payment approach aligns with your goals.

Things are moving in Alberta's market, and the right strategy today sets you up for long-term success. Contact our team to discuss your specific situation and discover which down payment strategy works best for your homeownership journey.

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