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Down payments for first-time condo buyers

by Corben Grant on 01 Feb 2022

Condos are a major component of the real estate market in major cities like Toronto and Vancouver and are becoming more and more popular in other areas every year. Condos offer much more affordable prices and allow for cities to be developed much more densely, making them a popular choice for residents, developers, and city planners.

Especially as prices in other housing segments continue to grow at a rapid pace, condos are becoming more and more attractive to the average buyer. Though they have also been increasing in value, in most cases they have not appreciated to the same extent as their larger counterparts.

Two groups who are especially attracted to condos are first-time homebuyers and younger people (Millenials and Gen-Z). For them, condos offer an affordable place to begin their real estate journey and can provide other benefits like being close to the city for work.

However, if you are a first-time homebuyer or looking to be one soon, you might not know everything about the home buying process and need a little more information before you make that first big purchase. Just because condos cost less, they are no less complicated to purchase, especially as a first-time buyer.

In this article, we are going to look at down payments specifically since they are the first step of the process. We will cover how much of a downpayment you will need, first-time buyers benefits, pre-construction down payments, and more.

How much does a down payment on a condo cost?

How much your down payment costs is ultimately going to depend on the cost of the condo you want to purchase, which changes depending on where you are looking. For example, in Toronto, the average price of a condo in late 2021 was $710,087, in Vancouver it was $761,800, in Calgary it was $252,000, and in Montreal, it was $379,950.

Is there a minimum down payment?

Your down payment is going to be a percentage of your property's total value. You can go as low as 5% for a down payment, though this is not quite as simple as it sounds. 

First of all, a 5% down payment only applies to values under $500,000, while any value above that, up to $1,000,000 is required to have 10% down. So if your condo cost $600,000 your minimum payment would be 5% on $500,000 and 10% on $1000,000, or about 5.8% in total.

For homes that cost more than $1,000,000, you are required to put a full 20% down. This is a lot less likely for condos, however, in areas like Vancouver or Toronto, it’s very possible to find million-dollar condos.

In addition, if you plan to mortgage more than 80% of your home, you will need to purchase mortgage default insurance, which can add a few percentage points on top of the amount you were expecting to put down. The lower your down payment, the more expensive your mortgage insurance premium.

How much is good for a down payment?

The option to pay less for your down payment is good if you are desperate to buy and do not want to wait to build up your down payment fund, but ultimately, it will be ideal to put up as much for your down payment as possible. This allows you to avoid mortgage loan insurance and also allows you to pay lower monthly mortgage payments. In addition to a lower monthly mortgage payment, you may have a shorter amortization period or better interest rates.

Do first-time buyers get benefits for buying a condo?

There are benefits that are offered for first-time homebuyers that are not any different for those buying a condo. In fact, some incentives have an upper limit on the home price they can apply to, so you may actually have a better shot at getting a first-time buyer's incentive when buying a condo.

First Time Home Buyer Incentive

The aptly named First Time Home Buyer Incentive is one such program that helps first-time homebuyers in Canada. This program is offered by the Government of Canada and takes the form of what is called a shared equity mortgage. With a shared equity mortgage, the government will offer you a percentage of your down payment amount, usually 5% or up to 10% for new construction.

You will not have to pay interest, but you will have to pay back 5% after 25 years or when you sell the home. Note, you are paying 5% of the value of your home, not the value of the loan. This means that the government has shared in the equity growth of your home, allowing the government to make money by lending your money.

The Home Buyers Plan

The home buyers plan is another incentive that the Government of Canada provides to first-time home buyers. Under this program, a buyer can withdraw up to $35,000 tax-free from their Registered Retirement Savings Plan. If you are buying with a spouse, you can both withdraw up to the full amount, meaning a total of $70,000. This is kind of like taking a loan from yourself as you will have to pay back the amount over a period of 15 years.

However, since you borrowed the money from yourself, missed payments mean you simply count the money as income and pay taxes on it. 

Land Transfer Tax rebates

Whenever you buy property, you will pay a land transfer tax that can add up to thousands of dollars above your purchase price. Luckily, in many areas, first-time buyers can get a rebate for some or all of the amount of their land transfer tax.

This is especially helpful if you are buying in Toronto, as both the province and the city will levy a land transfer tax. Both of these taxes have a first-time home buyer rebate, which can save you a lot of money!

First Time Home Buyers Tax Credit

The First Time Home Buyers Tax Credit can help offset some of your closing costs when buying a home. This tax credit is available to first-time homebuyers who claim it within the year of purchasing a qualifying home. Under this credit, homebuyers can receive up to a $750 rebate on their taxes.

Additional incentives

There are many other first-time homebuyer programs across the country, offered by the province or the municipality. To make the most of these incentives, you should contact a mortgage broker or tax professional who can help you find out what you are eligible for and to navigate the often complex qualifying rules.

How do pre-construction down payments work?

In the world of pre-construction condos, things can work a bit differently than in a regular resale condo purchase. For starters, most pre-construction condos will require at least 20% down, however, this is not the whole story. Though you will be paying 20% down, the amount is usually broken up into multiple different payments and spread out over the course of multiple months.

Usually, you will first pay a deposit when you agree to purchase the condo. This deposit can be around $3000 to $5000. You will then usually pay in 5% installments over a period of time that can range anywhere from a few months to a year and a half. A lot of the time, your final down payment amount isn't owed until you take possession of the completed unit, which can be years down the line in some scenarios.



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