How to Save for a Down Payment in Canada (and How Much You Really Need)

Buying your first home is a milestone for many Canadians.

What was once an exciting rite of passage feels like an unattainable struggle nowadays. It may feel harder to save enough money for the down payment, but with strong financial planning and an understanding of what’s involved in buying a home, you can bring homeownership within reach. 

In this article, we’ll help you understand how down payments work in Canada, including how much down payment you need for a first home, government programs to make the process easier, and how to budget to make homeownership a reality.

What Is a Home Down Payment?

A down payment is the upfront payment you make on your home (expressed as a percentage of your total home cost). The minimum down payment may vary depending on the cost of the home (between 5% and 20%). It’s paid out of pocket when you sign your purchase paperwork and goes toward the purchase price of your home. The remaining balance on your home is typically financed through your mortgage loan.

Of course, you can pay more than the minimum down payment if you have the funds. This can help bring down the amount you need to borrow (and lower your mortgage payments). Keep in mind as well that if you pay less than 20% for your down payment, you’ll typically need to purchase Mortgage Loan Insurance. 

How Much Do I Need for a Down Payment?

Your minimum required down payment changes as your home purchase price increases, with the average house down payment in Canada between 5% and 20%. 

Here is a summary of your required minimum down payment in Canada based on the purchase price of your home:

For example, if your home costs $395,000, multiply that by 0.05 (5%) to get your down payment of $19,750. 

If your home purchase price is $750,000, your down payment would be $50,000:

• 5% of the first $500,000 ($25,000)
• 10% of the remaining $250,000 ($25,000)

In addition to this minimum down payment, you’ll also need to save for other costs that won’t be included in your mortgage, such as closing costs, mortgage loan insurance, property appraisal fees, inspection fees, taxes, and real estate attorney fees, and interest. Setting aside an additional 5 to 10% of your home's cost can help you cover these.

How Down Payments Affect the Cost of Your Mortgage

If you have the funds, you can make a down payment of more than the minimum when buying your home. 

A larger down payment has a few benefits: 

• Lower mortgage balance. You borrow less, which reduces your monthly payments. 
• Less interest paid. Since the principal is smaller, the total interest over the life of the loan is lower. 
• Avoid CMHC mortgage insurance. With a down payment of over 20%, you don’t need mortgage insurance, which can save thousands more. 

Don’t forget that your credit score may limit how much the bank is willing to lend you for your mortgage. Learn more about the credit score needed for a mortgage.

First-Time Home Buyer Incentives and Government Programs 

Canada offers down payment assistance through several incentives and programs:

The First Home Savings Account (FHSA)

The First Home Savings Account is a registered savings account that allows first-time home buyers to save tax-free to buy (or build) a qualifying first home. Contributions to an FHSA are generally deductible and can be used to reduce your tax. When the time comes to make your first-time home buyer down payment, you can make a qualifying withdrawal to put towards your payment. You can also make non-qualifying withdrawals, but those must be reported as taxable income on your tax return.

The Home Buyer's Amount/Home Buyer's Tax Credit (HBTC)

This is a non-refundable tax credit of up to $1,500. To be eligible, you and your spouse must be purchasing a qualifying home and have not owned another home in the past four years.

GST/HST New Housing Rebates

This GST/HST rebate is a government program for down payments. It helps individuals recover some of the Goods and Services Tax (GST) or the federal portion of the Harmonized Sales Tax (HST) paid for a newly built or “substantially renovated” house that is to be used as the individual’s primary residence. 

The Home Buyers' Plan (HBP)

The Home Buyers Plan (HBP) allows home buyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) tax-free to help fund the purchase of their first home.

Comparison: FHSA vs. HBP

10 Proven Strategies to Save for a Down Payment

So, how do you save for your down payment when you have unsecured debt, current living expenses, car payments, and an active social life? It’s easy to be overwhelmed by the numbers and lose sight of the goal. But with hard work and discipline, you can save 5% to 20% for your down payment, and make homeownership an attainable reality. 

Mike Bergeron, Counsellor Manager at Credit Canada, suggests, “Your savings strategy should depend on your timeframe for homeownership and other financial goals. Diversifying savings across all goals is beneficial, but if buying a home is a top priority, it should receive the largest portion of your savings allocation.”

Here are some tips to help you make that home purchase more achievable, broken out into four main themes: smart budgeting, earning more, cutting expenses, and maximizing savings. 

Budget Smarter

1. Set a Financial Goal

Use the SMART framework (specific, measurable, achievable, relevant, and timely) when creating financial goals. For example, instead of saying “I want to save for a home down payment”, set a specific goal, like “I want to save $30,000 for a home down payment in three years.” Then, break your goal down into smaller chunks. Saving $30,000 in three years would mean setting aside $833 each month. 

Set aside a specific amount from each paycheque, and pay yourself first before paying any other expenses. Try automation to remove the need for active decision-making each pay cycle. By automatically transferring a specific amount to your RRSP, TFSA, or FHSA, you ensure consistent savings happen regularly without relying on willpower (or memory). You can start your financial goal-setting and planning right now with the Credit Canada Budget Calculator.

2. Use a Budget Planner or Expense Tracker

Stay focused on your goal by using a budget planner or an expense tracking tool to plan and track your income, expenses, and savings.

3. Stay Focused

Consider needs vs. wants when prioritizing your goals. Needs include paying down high-interest debt, essential home or vehicle repairs or maintenance, and health-related expenses. Wants include vacations, luxury items like designer clothing, and eating out. Make a personal rule to wait 24 to 48 hours before buying anything non-essential. Often, the urge to buy fades after a few hours. These little changes, applied consistently, add up faster than you might think.

Boost Your Income

4. Get a Side Hustle

Take a part-time job, or start a side hustle to save for a house. Look for hobbies you can turn into extra income. Just make sure your extra income goes into your home savings.

5. Save Tax Refunds and Windfalls

If you get a tax refund, put it towards your down payment. If you have less than $60,000 in your RRSP or haven’t fully funded your FHSA ($8,000/year), consider investing your tax refund into your RRSP or FHSA, which will help you get a tax refund next year. This creates a cycle of saving and earning more money for your down payment.

Also, save windfalls like bonuses or monetary gifts from family. It might be tempting to spend it, but directing even a portion into your down payment fund can shave months off your home-buying timeline.

Cut Expenses

6. Consolidate Gifts and Savings

Use Christmas, weddings, or other occasions as opportunities to add to your savings. Tell family and friends about your goal and let them play a part. Instead of asking for specific items, ask them to contribute cash toward your savings goal.

7. Look Beyond “Hot” Markets

Consider a lower-priced first home (sometimes known as a starter home). This will come with lower down payment requirements, helping you get into the housing market faster and build equity for future home purchases.  

8. Consider a Condo vs. a House

Condos and townhomes can cost significantly less than a house for almost the same amenities (if not more). Not having a lawn and backyard to maintain can also reduce your home maintenance budget over the coming years. However, be sure to take added condo fees into account, which can affect how much you’re approved for and how much you can actually afford.

Maximize Savings

9. Check Out the Home Buyers’ Plan (HBP)

Consider accessing the Home Buyers’ Plan with the CRA to use up to $60,000 (per person) of your RRSP savings for qualifying down payments.

10. Set up a First Home Savings Account (FHSA)

Put your down payment savings into a dedicated FHSA account so it’s set aside and tax-free for your down payment. 

How to Balance Debt and Saving for a Down Payment

It can feel overwhelming to save for your down payment when you’re living paycheque to paycheque or have unsecured debts like credit card debt. 

One way to balance debt and save for your down payment is to consolidate your high-interest debts into one lower-interest loan, or consider a Debt Consolidation Program. This can reduce your monthly payments and help you get out of debt faster. You can use the “extra” savings now to put into your FHSA for your first home purchase.

Responsible financial planning and careful preparation can help you secure your dream of owning a home. 

If you need help budgeting for a down payment or are considering debt consolidation so you can focus on saving, call and speak to one of our certified Credit Counsellors for free, personalized advice. They will help you set realistic financial goals (like saving for a down payment) and create a budget to help you achieve them.

Need Help Saving? Talk to a Credit Counsellor Today

It’s common to feel that homeownership is out of reach, especially in today’s economy. However, speaking with your mortgage specialist or a certified Credit Counsellor can help. They can review your financial situation, outline a realistic plan and timeline, and give you steps you can take now to work toward this goal.

Contact us online or call 1(800)267-2272 to get started, or talk to our AI debt management agent, Mariposa, for personalized advice when it’s most convenient for you.