Being a Responsible Borrower

A down payment is the portion of the home’s purchase price that you pay upfront, rather than financing through a mortgage.

In Canada, buyers typically need at least 5% of the purchase price as a down payment.

Down payment funds generally must come from your own savings. However, a relative may provide a gifted down payment. If this happens, the lender will require a gift letter confirming that the money is a gift and does not need to be repaid.

You must also provide documentation to show the source of your down payment funds.

If your down payment is less than 20% of the purchase price, you will need what is called a high-ratio mortgage.

High-ratio mortgages require mortgage insurance, which protects the lender if you are unable to repay the loan.

Key points to understand:

• The property must be your primary residence
• Mortgage insurance is mandatory
• The insurance premium is added to the total mortgage amount

Mortgage insurance premiums vary depending on the size of your down payment. They can range from under 1% to more than 3% of the purchase price.

A mortgage broker, lender, or real estate professional can help estimate your exact insurance cost, and some online calculators can provide estimates as well.

If your down payment is 20% or more, mortgage insurance is generally not required.

When you make an offer to purchase a property, you will usually need to provide a deposit.

Your real estate professional can advise you on the appropriate amount. In most cases, the deposit becomes part of your total down payment once the purchase is completed.

In addition to your deposit and down payment, you will also need to cover closing costs.

Closing costs are typically paid on the possession date—the day the transaction is finalized and ownership of the property transfers to you.

Common closing costs may include:

• Legal or lawyer fees
• Property tax adjustments
• Title insurance (if applicable)
• Administrative costs

It’s a good idea to budget several thousand dollars for closing costs on top of the purchase price.

Being approved for a mortgage does not mean you should spend the maximum amount available.

Leaving room in your budget can help protect you from financial stress if:

• Interest rates increase
• Unexpected expenses arise
• You experience a temporary loss of income
• You take time away from work for illness or parental leave

Many financial experts recommend buying a home that fits comfortably within your budget rather than stretching your finances to the limit.

You may often hear the terms buyer’s market, seller’s market, or balanced market in real estate news and discussions. These terms describe the relationship between the supply of homes for sale and buyer demand.

Buyer’s Market
A buyer’s market occurs when there are more homes available than buyers.

In this situation:

• Buyers often have more negotiating power
• Homes may stay on the market longer
• Buyers may be able to negotiate a better price

Seller’s Market
A seller’s market happens when buyer demand is high but housing supply is limited.

In a seller’s market:

• Homes may sell quickly
• Multiple buyers may compete for the same property
• Buyers may feel pressure to offer higher prices

Balanced Market
A balanced market occurs when the number of buyers and homes for sale are relatively equal.

In this environment:

• Negotiations are more balanced
• Prices tend to remain stable

Understanding current market conditions can help you make more informed decisions when buying a home.

A mortgage is more than just a monthly payment. Make sure you understand the full financial impact before committing.

Ask yourself:

• How much will the mortgage cost over time?
• Can you comfortably afford the payments?
• Will the mortgage affect other financial goals or lifestyle choices?

Owning a home also includes additional costs such as:

• Closing costs (legal and administrative fees)
• Moving expenses
• Property taxes
• Home insurance
• Condominium fees (if applicable)
• Home maintenance and repairs

Planning for these expenses helps ensure homeownership remains affordable.

Your credit history helps lenders determine whether you qualify for a mortgage.

When reviewing your mortgage application, lenders typically check your credit report. Your credit score can be affected by factors such as:

• Late or missed payments
• High credit balances
• Too many credit checks in a short period of time

Maintaining a strong credit history improves your chances of qualifying for a mortgage with better terms.

Lenders often look for steady income and stable employment when reviewing mortgage applications.

You may find it easier to qualify if you have:

• Stable full-time employment
• Consistent income history

If you are self-employed, a contractor, or have seasonal income, qualifying may be more challenging. However, some mortgage products are designed specifically for these situations. A mortgage broker can help you explore available options.

Mortgage payments are a long-term commitment. Consider how they may affect your ability to manage future expenses.

For example, will you still be able to afford:

• A vehicle purchase
• Travel
• Starting or growing your family
• Education costs
• Saving for retirement

Make sure your mortgage fits comfortably within your overall financial plan.

Missing mortgage payments can have serious consequences.

If payments are not made on time and in full, lenders may charge:

• Late payment penalties
• Additional fees
• Interest charges

If the mortgage goes into default, the lender may take legal action and could eventually take possession of the property (foreclosure).

If the property is sold for less than what you owe on the mortgage, you may still be responsible for paying the remaining balance.

Homes are often considered a good investment, but property values can rise or fall over time.

If the market value of your home decreases, the equity you have built may also decrease.

Understanding this risk is an important part of responsible homeownership.