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Courtier Immobilier Montréal Yanick E Sarrazin

What is a down payment?

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Important information

Buying a property is an investment involving different stages. An essential step in this process is to finance the property that you want to buy: it is the down payment. But what exactly is the down payment? What are the different down payment percentages depending on the type of property? Here’s a quick overview of what a down payment is to facilitate your understanding.

Down payment : what is it?

A down payment is a portion of the amount you will need to take out of your savings to complete the purchase of the desired property. Mortgage loan insurance, commonly known as mortgage, will then pay off the remaining balance of the property.

It is important to know that the higher the down payment, the lower the loan and the interest. The lower the down payment, the higher the mortgage will be. Also, depending on the amount of the property, as well as the type of property (residential or commercial), the down payment rate will differ.

Residential propreties

Single-family and duplex homes

Property of $ 500,000 or less

The minimum down payment for a property of $ 500,000 or less is usually 5% of the purchase price for the owner-occupier. For example, if the property was worth $ 400,000, the amount paid for it would be $ 20,000. The mortgage amount will then be $ 380,000. However, it should be noted that interest rates and additional amounts are added to this mortgage.

Property from $ 500,000 to $ 999,999

The down payment for a property of $ 500,000 or more is 5% of the first $ 500,000 and 10% of the amount exceeding $ 500,000. This then means that for a property of $ 600,000, the down payment will be $ 35,000.

This amount was obtained by calculating:

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

10% x $ 100,000 = $ 10,000

So $ 25,000 + $ 10,000 = $ 35,000

Property of $ 1,000,000 or more

The down payment for a property of $ 1 million or more is 20%. For example, if a property is sold for $ 2 million, then the down payment for that property will be $ 400,000.

Triplex and quadruplex

Property of 500 000$ or less

The minimum down payment for a triplex or quadruplex of $ 500,000 or less is usually 10% of the purchase price for the owner-occupant. For example, if the property was worth $ 400,000, the amount paid for it would be $ 40,000. The mortgage amount will then be $ 360,000. However, it should be noted that interest rates and additional amounts are added to this mortgage.

Property from 500 000$ to 999 999$

The minimum down payment for a triplex or quadruplex of $ 500,000 or less is usually 10% of the purchase price for the owner-occupant. For example, if the property was worth $ 400,000, the amount paid for it would be $ 40,000. The mortgage amount will then be $ 360,000. However, it should be noted that interest rates and additional amounts are added to this mortgage.

Property of 1 000 000$ or more

As with single-family homes and duplexes, the down payment for a triplex or quadruplex of $ 1 million or more is 20%. For example, if a property is sold for $ 2 million, then the down payment for that property will be $ 400,000.

Rental propreties

It should be noted that if the owner does not live on the premises of his property, that is to say that he is not an ”occupying owner” and that he has his accommodation(s) rented, he will then have to pay a down payment of 20% for a single-family house, a duplex, triplex or quadruplex.

In the current market, for buildings with five or more units, a down payment of 30% to 50% is required by the majority of financial institutions, regardless of whether the owner remains in the property or not.

Down payment is a fairly complex concept and will vary depending on the type of property and its purchase price. For single-family and duplex homes of $ 500,000 or less, the down payment is usually 5%. Properties between $ 500,000 and $ 999,999 have a down payment of 15% while those with an amount of $ 1 million and more will require a down payment of 20%. For triplexes and quadruplexes up to $ 999,999, the down payment will be 10%. It should be noted that properties that are not occupied by their owner choose a down payment of 20%. Rental properties can vary between 20% and 25% of the down payment depending on the type of property.

With this wealth of information in mind, it is recommended that you be accompanied by your financial institution and by a real estate broker who will explain in detail the intricacies of the down payments required for each type of property.

Contact one of our real estate broker for additional information

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