What is a down payment and how does it affect your choice and ability to buy a home in the Lower Mainland? And how is this going to apply when searching for a condo in Metro Vancouver?

This guide will help you understand the fundamentals that you need to know about down payments for buying a condo in the Lower Mainland of BC.

By the end of this guide, you’ll understand the core purpose of a down payment, how to calculate the minimum required down payments when purchasing, and many other payment considerations you need to make as a condo buyer.

Table of Contents

The Purpose of the Down Payment

The purpose of the down payment is to finance the remaining purchase of the property through a loan. Banks will require a certain amount of money to be paid upfront so they’re able to loan the money at a risk-level that is appropriate for their balance sheets.

Down payments also give the buyer an immediate proportion of ownership of their new purchase, by owning some equity in the property. This shows that the buyer is able to raise a certain amount of money and make a purchase like this financially sound.

Minimum Down Payments For Condos In Metro Vancouver

When purchasing a condo in Metro Vancouver, there can be a wide range of property values, from multi-million dollar penthouse suites to studio apartments.

Depending on the final purchase price, the minimum down payment required will change.

Below is the breakdown for regular buyers and investment oriented buyers for British Columbia.

General

These are the general down payments required for a condo in British Columbia, for both those looking to purchase a home for the first time and those who are seasoned in real estate purchases. Below are three different examples for the different purchase price points and the down payment required for the condo:

Less than $500,000 Purchase Price

When purchasing a house below the half a million mark, the minimum down payment is 5% of the purchase price.

Example

Purchase price of $395,000

Minimum down payment required would equal = $395,000 x 5% = $19,750

$500,000 to less than $1,000,000 Purchase Price

When purchasing a home between half a million and one million dollars, only 5% is needed on the first $500,000 and 10% is required on the remaining amount.

Example

Purchase price of $850,000

Minimum down payment required would equal = ($500,000 x 5%) + ($350,000 x 10%) = $60,000

Breakdown

$25,000 on the first $500,000 and $35,000 on the next $350,000 over the half a million for a total of $60,000.

$1,000,000+ Purchase Price

When purchasing a home over the million dollar mark, the required down payment jumps significantly, up to 20% of the total purchase price.

Example

Purchase price of $1,250,000

Minimum down payment required would equal = $1,250,000 x 20% = $250,000

Investment Properties

When purchasing an investment property, there is a different amount required for the downpayment which is 20% of the purchase price, regardless of how low or high the property is priced at.

Example

Purchase price of $1,300,000

Minimum down payment required would equal = $1,300,000 x 20% = $260,000

How Much Do I Need For a Pre-Build Condo?

It’s important to understand tha pre-built condo sales can come with their own down payment requirements for buyers. Typically, this is about 10% to 20% of the purchase price of the condo unit, depending on the builder and details involved.

In some instances, you’ll need a minimum of 20% to 30% down payment for the purchase price of the condo for a pre-build. When the deposits are required for such a high percentage of the property purchase price, there is typically a payment schedule to help the buyer pay over a period of time.

Just keep in mind that if you want to buy a pre-sale condo, you’ll need to have much more upfront cash for that down payment than buying something available today.

How The Down Payment Will Affect Your Mortgage?

Depending on how much you want to put down when purchasing a condo, it can affect your mortgage payment in several ways, such as interest rates for the mortgage to the total mortgage amount that you’re committed to.

Bigger down payments equal smaller mortgage payments

One way to avoid having a huge mortgage payment is by paying above the minimum down payment amount when purchasing the home. This will allow your monthly mortgage payments to be lower.

This is a huge consideration for home buyers during this time as we see interest rates rise in Canada. Having a more manageable monthly payment by putting more money down on a condo is a common strategy used by heavy savers to have a less cumbersome mortgage payment.

This concept also applies in the reverse. With a smaller down payment comes larger monthly mortgage costs.

Insurance required on down payments less than 20%

When buying a home and putting less than 20% of the purchase price as a down payment, it’s required for the buyer to purchase mortgage insurance.

Specifically, mortgage default insurance.

This is an insurance premium charged based on a certain amount of how much you’ve borrowed versus the down payment you’re going ahead with.

Note that buying a condo in Vancouver and surrounding areas can be a bit tricky with the insurance and down payment details. For instance, homes with purchase prices greater than a million dollars are not qualified to purchase mortgage loan insurance.

For more information, check out this guide from the CMHC on Mortgage Loan Insurance.

Interest rates and small down payments

With low interest rates over the past decade, it’s been easy for people to put lower amounts down when purchasing a condo. However, now that we’re seeing interest rates rise to combat inflation, we may begin to see larger down payments so that more preferred interest rates are applied to the loan.

Sources for a Down Payments

Obtaining a down payment for your first condo is usually done through the following three ways: savings, help from family and a bank or credit union mortgage loan.

Savings from over the years is one of the most common ways we see people get ready for a down payment. Nothing like cutting out those fancy dinners every tuesday to get that savings account up there for your next property.

Similarly, you might have savings from a previous real estate sale that will allow you to fund your down payment. A very common strategy for those looking to buy their second or third property.

Family loans is a very popular route for families that have that extra savings that they can then pass on to their children.

Other types of bank or personal loans may also be available to you that allow you to use that money for a down payment on a home, so you can get a mortgage and get into the market. This is not typically suggested as having that much leverage could potentially put you in a bad financial position should the market and interest rate levels change.

Are You Ready To Purchase?

Still not sure how to approach the down payment for a condo or what you need to prepare? Don’t worry, our experts here at Metro Vancouver Life can guide you through the whole condo buying process.

We’re here to help you with any questions when buying a condo.