Buyer cash contribution that reduces the mortgage amount and influences LTV and insurance treatment.
A down payment is the portion of a home’s purchase price that the borrower contributes up front instead of borrowing through the mortgage.
Down payment size affects the mortgage amount, the loan-to-value ratio, whether mortgage default insurance is required, and how much cash the borrower must have ready before closing.
In Canadian mortgage context, the down payment is one of the first numbers that shapes the file. A larger down payment lowers the amount borrowed and usually lowers the starting loan-to-value ratio. A smaller down payment can still be acceptable, but it may make the mortgage high-ratio and trigger insured-borrowing rules.
CMHC’s current consumer guidance says the minimum down payment starts at 5% for eligible lower-priced purchases and rises on stepped portions of the purchase price. That minimum is only the threshold to enter the deal. Borrowers still need to verify the source of the down payment and still need separate funds for legal fees, land transfer tax, and other closing costs.
Canadian lenders and insurers also look at where the down payment comes from. Savings, sale proceeds, eligible gifts, and some non-traditional sources may be accepted depending on the product. The source matters because the lender wants to know whether the borrower is adding real equity or taking on extra repayment obligations elsewhere.
Suppose a buyer agrees to pay $700,000 for a home and contributes $70,000 personally. That is a 10% down payment. The remaining amount is financed through the mortgage, subject to qualification, valuation, and insurer or lender rules.
Down payment is not the same thing as total cash needed to close. A borrower may have enough for the down payment and still come up short on taxes, legal fees, appraisal fees, and adjustments.
It is also a mistake to assume all down-payment dollars must come from long-held savings. Some lenders and insurers accept gifted or non-traditional sources, but those sources are not treated identically.
Acceptable down-payment sources, documentation, and treatment vary by lender, insurer, property type, and transaction structure. Rules can also differ when the mortgage is insured, insurable, or bundled with other credit needs.