Dos and Donts of Forming A Down Payment

When your buying residential property in Regina, you must have a down payment; unless your buying the property fully in cash. But because your probably not one of those people who have hundreds of thousands of dollars sitting in your bank account, you’ll probably need a down payment.


The minimum down payment for properties under $500,000 in Saskatchewan is 5%. 

$300,000 Home = $15,000 down 
$450,000 Home = $22,500 down

The minimum down payment for properties over $500,000 is 5% on the first $500K, 10% down on the remaining. 

$565,000 Home = $31,500 down (5% of $500K is $25,000, 10% of $65k is $6500 = $31,500)
$700,000 Home = $55,000 down (5% of $500K is $25,000, 10% of $300k is $30,000 = $55,000)

The minimum down payment for properties over 1 Million is 20%. 

$1,000,000 Home = $200,000 down

*Individual banks may have different policies for properties over $750,000. 

 

Can you gift or be gifted a down payment?

In some instances, yes. If you are gifting a down payment to a blood relative, you will have to fill out a gift letter. Lenders are very strict on down payment rules for the following reasons:

First, the lender cares about the source of the down payment because it indicates the buyer is financially qualified to purchase the home.

Second, In order to prevent money laundering, lenders have to prove the source of the down payment on the purchase of a home (meaning they must be able to see the down payment has been in your account for 90 days and was accumulated through payroll deposits or otherwise proven ex: RRSP, inheritance etc.)

Lastly and most important to this scenario, the down payment establishes the loan to value ratio. Now, the loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. 

The bigger the down payment the better (as far as the lender is concerned) because there is a direct correlation between how much money someone has as equity in a property to the likelihood they will/won’t default on their mortgage. To break that down… the more equity in the home, the less likely you’ll be to default on the mortgage. 

“I am selling my house on ComFree and I have someone who is interested in purchasing my property, but they don’t quite have the full down payment, can I give them part of the down payment to help them out? I REALLY need to sell my house! Does the bank really care where the down payment comes from?”


You bet they care about where the down payment comes from. The bank will not lend to someone who is not properly qualified to take on a mortgage. In the eyes on the lender, if you cannot form the down payment by yourself, you are not a good candidate ensure a mortgage to.

“Can I increase the asking price of my home and gift the down payment to the buyer?”


ONLY if they are a blood relative and you are gifting them equity out of the home and as there is no repayment schedule made. The money must be a gift that is not to be paid back. People who are unrelated cannot and should not go this route.  

“If the buyer wants my house really badly, but doesn’t have the full down payment, can they borrow the money from somewhere and then we provide them with cash back at closing to repay the debt?”


No. ANY cash back from the seller to the buyer when the purchase transaction closes is a big no-no. 

“But what if the lender doesn’t know about it?”


This is called fraud. Having conditions to the sale of a property that are not disclosed to the lender is fraud. There is no 2 ways about it.

 

So, there you have it. 

A down payment can only be in the form of saved earning or gifted from a blood relative. Down payment money can also come from an RRSP, inheritance or lottery winning. You have to be able to prove the money came from a legitimate and acceptable source. 

 

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If you have any questions about how to form a down payment and the dos and don’ts around them, I would be happy to meet and go through my home buyers guide!

Give me a call at 306-552-7047 or fill out my online contact form!

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