Home Buying in Toronto: How Much Down Payment Do You Really Need?

If you are someone looking to buy a home in Toronto, then I must say that you have excellent taste, as Toronto is an awesome spot to snag a home for a bunch of reasons! First off, the city is bursting with energy and has a super diverse culture that will keep you entertained and inspired. Plus, you've got top-notch healthcare and schools, so you know you're in good hands. Jobs? No worries! Toronto's got a booming job market across all sorts of industries. And get this, the city is super safe with cool parks and killer transportation, making it easy to explore.

That being said, when you're looking to buy a new home in Toronto, one important thing to consider is how much you can afford for that down payment. In Canada, the required down payment can vary depending on factors like the type of home and the size of your mortgage. Knowing this amount helps you figure out if you're financially ready to buy your dream home in Toronto.

what is a down payment?

So, when you're buying a house, you got to pay something called a down payment. It's basically a big chunk of money that you pay upfront. It's like a part of the total price of the house. But don't worry; you don't have to pay for the whole thing right away!

Most of the time, people get a loan, like a mortgage, from a bank or some other money-lending place to cover the rest of the house price. So, the more money you put down as a down payment, the less you got to borrow for the rest of the house. And you know what that means? It means your monthly payments will be lower, and you will end up paying less interest in the long run.

Since it’s essentially a percentage of the total purchase price, and the exact amount depends on how much the house costs. If the price tag is higher, naturally, the down payment will be higher too.

To get a better grasp on the numbers, you can make use of handy online tools like a house down payment calculator. By plugging in some figures, you'll get a good estimate of how much money you'll need to save up for that down payment.

How much down payment do I need to buy a house in Toronto?

The journey towards purchasing a home typically commences well in advance of the actual transaction, often spanning several years. This extended duration is necessary to accumulate sufficient funds for a down payment, which varies depending on several factors, such as the desired location, personal income, expenses, and the prevailing home prices. In Canada, the minimum down payment requirement is determined by the purchase price. For properties priced at $500,000 or less, a five per cent down payment is mandated. In the case of homes priced between $500,000 and $999,999, the down payment comprises 5% for the first $500,000 and an additional 10% for the remaining portion. Properties exceeding $1 million necessitate a 20% deposit.

Recent statistics provided by the Canadian Real Estate Association (CREA) indicate that the average home price in Canada stood at $612,204 as of January 2023. Consequently, the minimum down payment for a property of this value would amount to $36,220.40, calculated as five% of $500,000 plus 10% of the remaining $112,204. To avoid the obligation of mortgage loan insurance, a 20% down payment, equivalent to $122,440.80, would be required.

Read More: Opening the Door to Homeownership With Government Programs for First-Time Buyers

It is worth noting that the national average merely serves as a reference point, as down payments in Ontario differ significantly from those in British Columbia or Prince Edward Island. Engaging the services of an experienced real estate agent can be invaluable in navigating the nuances of your local housing market.

How to save for that down payment?

Saving for a down payment can pose a significant challenge for aspiring homeowners in Canada's expensive housing markets, such as Toronto. While the average income may be higher in this city, the elevated cost of living leaves little room for substantial savings. If purchasing a home is your goal, it is crucial to start saving as early as possible, as time can work in your favour.

To facilitate your savings journey, it is helpful to establish a specific savings goal. Having a clear target makes it easier to stay focused and committed to your plan. Consider setting up an automatic withdrawal on each payday, redirecting a portion of your earnings towards your down payment fund. By doing so, you can gradually build your savings without feeling a significant impact on your take-home pay.

Adopting a frugal mindset is also essential. Cut back on discretionary spendings, such as dining out, buying coffee at cafes, and opting for stay-at-home vacations instead of costly trips. Embracing a lifestyle that prioritises saving over immediate gratification will not only save you money but also bring you closer to achieving your homeownership goal.

It's worth noting that the Government of Canada provides assistance programs and incentives for first-time homebuyers. One such program is the Home Buyers Plan, which allows first-timers to borrow up to $35,000 from their Registered Retirement Savings Plan (RRSP) for their home purchase. In cases where multiple first-time buyers are involved, each individual can borrow this amount, subject to understanding and meeting the repayment requirements.

Additionally, introduced in September 2019, the First Time Home Buyer Incentive (FTHBI) aims to reduce monthly mortgage payments for first-time homebuyers without increasing the required down payment. This program offers an interest-free, shared-equity mortgage, which must be repaid upon the sale of the property or after 25 years—whichever comes first. The government shares in any gains or decreases in property value, ensuring a fair arrangement for both parties.

By implementing these strategies and taking advantage of available government programs, you can navigate the challenging path to homeownership and realise your dream of owning a home in Canada's competitive housing market.