New Minimum Down Payment Rules Effective February 15, 2016

Home MortgageThe new minimum down payment rules come into effect on February 15, 2016, and will affect homebuyers who:

  •  are buying a home in the $500,000-$1,000,000 price range; and
  •  wish to make the minimum down payment possible.

For homes up to $500,000 there is no change – the minimum down payment with an insured mortgage is 5%.

For homes above $1,000,000, mortgage insurance isn’t available, and so the minimum down payment is 20%.

If you are buying a home in the $500,000-$1,000,000 price range, the new minimum down payment will be 5% on the first $500,000 and 10% on every dollar between $500,000 and $1,000,000. For example, if you are buying a house for $900,000, the new minimum down payment will be calculated as follows:

5% X $500,000 = $25,000

10% X $400,000 = $40,000

Total minimum down payment = $25,000 + $40,000 = $65,000.

This compares to a $45,000 minimum down payment under the current rules, so you would need an additional $20,000, which is more than 40% higher. Not a small difference.

If you would like to take advantage of the ‘old’ rules, you need to have a Purchase and Sale Agreement in place, including a mortgage application, by February 15, and the closing date must be no later than June 30.

The change in rules is unlikely to have a big impact on the market, but the January market may well be somewhat busier than usual, with buyers in the $500,000 – $1,000,000 price range trying to beat the deadline.