Downpayment For a Condo

Many first-time home buyers, or current tenants have the dream of owning a home. In the current Toronto real estate market, climbing the property ladder for first time buyers, mostly start from buying a Condo. For the first-time buyers putting together a down payment for a condo can be challenging. Minimum downpayment for a condo is 5% if you can be approved for an insured mortgage.

If you are a condo investor buying your second or third condo, the typical condo down payment would be 20%. The Loan to Equity ratio however depends on your Debt Service and affordability.

Purchasing a condo, other than down payment, includes other costs. Such as land transfer tax, moving costs, etc. However first-time home buyers have some exceptions when it comes to land transfer tax. In this article we’ll tell you how you can save money on land transfer tax if you are a first-time home buyer.

If you are short in terms of down payment, there are numerous creative ways to gather the downpayment for your home, especially for first-time home buyers. We’ll discuss that in this article. Any of our top Toronto real estate agents can help you with getting your first condo.

Downpayment for a condo in various areas of Toronto:

In the Greater Toronto Area ( GTA) the average condo down payment is based on the average price of a condo apartment. The average price of a condo in GTA, beginning of 2020, is $612K, so the average downpayment for a condo in GTA is between $30,000 to $130,000 depending on how much you approved for the mortgage.

In downtown Toronto however the numbers are slightly different. Average condo downpayment for a condo in downtown Toronto is between $38,000 to $180,000. The average down payment depends on how much you get approved for a mortgage. The average price of a condo in Downtown Toronto beginning of 2022 is $840K.

In the other parts of Toronto however the amount of average Toronto condo down payment is slightly lower though. The minimum down payment for a condo in other parts of Toronto is between $33K to $140K, depending on how much mortgage you get approved for.

Read More : Best Condos In Toronto

Where to get the downpayment for a Toronto condo from:

For many young people the dream of owning their first condo ties with the Down Payment. As a Toronto Real Estate Agent, I have helped many first time home buyers with purchasing their first condo. I can tell you that not everyone has a hundred or two hundred thousand dollars sitting to put down as their condo’s down payment. Thus young buyers sometimes are forced to get creative to find ways to leverage and put together the down payment for their first condo.

Below you can see the ways that my clients used to put together the downpayment for a condo:

1. Personal Savings

The first place and easiest source that you can think of, is personal savings. Many of us have left money in savings accounts to grow. If you have money in your savings account, or you have Stocks in your Tax Free Savings Account that are not performing very well, you can liquidate them and put them towards your home ownership. Even if you think your TFSA is working very well, I encourage you to read this article about finding out are condos a good investment? , then decide whether you want to use the money that you have in your savings account or not. Compare your Savings account performance with a condo investment performance in the past, then choose to touch that money or not. Here you also can find out is buying a condo better or keep renting, and compare renting vs. buying.

The difference between buying a Toronto condo and investing in the stock market is the leverage. In the stock market you literally have no leverage. But in the real estate market you can buy a condo in Toronto with 5% down payment if your income supports the mortgage! So for example for a $600K one bedroom condo in Toronto you’d need 5% up to 500K and 10% for the difference. That means the minimum downpayment for a 600K condo in Toronto that you’d need is $35,000 . Now if your condo goes up to $700,000 , means that you’ve built $100,000 equity. Dividing $100K/$35K equals to 285% return on your original condo downpayment! What kind of investment in the stock market would give you that return?

2. The RRSP under Home Buyers’ Plan

With the Federal Government’s Home Buyers’ Plan now you can use up to $35,000 of your RRSP savings to put towards your condo’s downpayment. If you are a couple you can use up to $70,000 of your RRSP towards the downpayment of your new home. This method could save you taxes as well. How? Read below.

However, to qualify for that, the funds need to be in your RRSP for a Minimum of 90 days prior.

The cool part is that withdrawal of your funds from your RRSP is not Taxable if you pay it back within 15 years.

Another great advantage that this method has, is tax deductions on your income. For example, if you have already saved $35,000 for a down payment, you could move your savings into an RRSP at least 90 days before your closing date, if you have that much contribution room in your RRSP.  This way your $35,000 of RRSP contribution will count as a tax deduction this year. Then you can use any tax refunds that you get, and put that towards the downpayment, or moving costs etc. Remember that you still need to return that amount within the next 15 years.

For more details consult your mortgage broker and a Toronto REALTORⓒ.

3. Bank of Mom and Dad, or Grandma

In recent years, many of the homes in Toronto have seen huge capital gains. Older parents who own their homes, and bought it 20 years ago for a few hundreds of thousands of dollars. Now usually they have a paid off, or nearly paid off home, worth over a millions of dollars. That will make them able to get a line of credit on their home equity in order to help their adult children with the downpayment for their condo. Some parents have savings who are willing to help their children with, to make their home ownership come true.

In a recent survey from CreditCards.com , around 90% of people have mentioned that they would give their adult children the money to pay off their debts. Of course that depends on How much Money you need, and how good of Child you’ve been, just kidding.

So you might be able to ask your parents or family for a little boost if they are willing to help you to become a homeowner.

4. Co-Ownership

This option is a great one for millenials. I personally as a Toronto real estate agent help many millenials to get into their market. And with the housing price in Toronto, and the fact that millenials would like to live closer to the central areas and core, this options has come in handy. That’s how it works, for example two people who each can afford up to $500,000 and would love to live near downtown Toronto, but can not find what they want with that price range, join forces and get into a joint ownership. That way they buy a Duplex property for $900,000 and live in that property. This can be done for smaller families or younger couples. For more details on how to find downpayment for a condo in Toronto or to locate the best properties for co-ownership, you can contact us.

Minimum Down Payment Requirements

In Canada, the minimum down payment required for a property depends on the purchase price:

• For condos priced at $500,000 or less: The minimum down payment is 5% of the purchase price.
• For condos priced between $500,001 and $999,999: The minimum down payment is 5% for the first $500,000 and 10% for the portion of the price above $500,000.
• For condos priced at $1 million or more: The minimum down payment is 20% of the purchase price. Properties at this price point do not qualify for mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC), and thus require a larger down payment.

Mortgage Insurance

If your down payment is less than 20%, you are required to purchase mortgage insurance through CMHC, Sagen, or Canada Guaranty. This insurance protects the lender in case you default on your mortgage. The cost of mortgage insurance varies based on the size of your down payment and the mortgage amount, typically ranging from 0.6% to 4.0% of the total mortgage.

Additional Costs to Consider

In addition to the down payment, there are other costs associated with buying a condo in Toronto that you should budget for:

• Closing Costs: These typically include legal fees, land transfer taxes, and home inspection fees. A good rule of thumb is to budget an additional 1.5% to 4% of the purchase price for these expenses.
• Pre-Construction Condos: If you are purchasing a pre-construction condo, be aware that the initial deposit structure might differ. Developers often require a series of payments (totaling around 15% to 20% of the purchase price) over the construction period.

Impact on Mortgage Approval

The size of your down payment can significantly impact your mortgage approval process and the interest rates offered by lenders. A larger down payment reduces the lender’s risk and can lead to better mortgage terms, including lower interest rates and more flexible repayment options.