Buying your first home is an exciting milestone, but it can also come with plenty of questions, especially when it comes to money.
One of the most common questions I hear from first-time buyers in Kitchener, Waterloo, and Cambridge is: “How much money do I actually need to buy a home?”
Many people assume they need a 20% down payment before they can even start looking. Others are surprised to learn that a deposit and a down payment aren’t quite the same thing.
The good news? You may be closer to homeownership than you think.
Let’s break down how deposits work, how much you’ll need for a down payment, and what you should have saved before making an offer.
What’s the Difference Between a Deposit and a Down Payment?
Although these terms are often used interchangeably, they serve different purposes when purchasing a home.
Your deposit is the money you provide shortly after your offer is accepted. It demonstrates to the seller that you’re serious about purchasing the property and committed to completing the transaction.
Your down payment is the total amount of your own money you’re contributing toward the purchase of the home, with the remaining balance typically financed through a mortgage.
Here’s the important part: your deposit forms part of your down payment. It’s not an additional expense.
For example, imagine you’re purchasing a home for $650,000 and plan to put $40,000 down.
If you provide a $20,000 deposit when your offer is accepted, that money is credited toward your purchase. You’ll only need to provide the remaining $20,000 of your down payment at closing.
Understanding this distinction can make budgeting for your first home much easier.
How Much Is a Typical Deposit in Ontario?
Unlike down payments, there is no legally required minimum deposit amount when purchasing a resale home in Ontario.
The amount is negotiated between the buyer and seller and included in the Agreement of Purchase and Sale.
In many transactions, a deposit of approximately 5% of the purchase price is common, although the amount can vary depending on the property, market conditions, and strength of the offer.
For example, on a $600,000 home, a 5% deposit would be $30,000.
However, that doesn’t necessarily mean you must provide $30,000 to purchase the property. A smaller deposit may be acceptable depending on the circumstances.
As your REALTOR®, part of my job is helping you structure an offer that’s competitive while remaining comfortable for your financial situation.
When Do You Have to Pay the Deposit?
In many Ontario resale transactions, the deposit is due within 24 hours after an offer is accepted, although the exact deadline depends on the terms of your agreement.
This is why it’s important to have your deposit funds readily accessible before submitting an offer.
If your savings are tied up in investments or accounts that take several business days to withdraw from, you’ll want to plan ahead.
Deposits are typically provided by bank draft, certified cheque, or electronic transfer, depending on the brokerage’s requirements.
The money is generally held in a real estate brokerage’s trust account until closing, when it’s credited toward the purchase price.
How Much Down Payment Do First-Time Buyers Need?
Here’s where things get interesting.
In Canada, you don’t necessarily need a 20% down payment to purchase your first home.
The minimum required down payment depends on the purchase price:
| Purchase Price | Minimum Down Payment |
|---|---|
| $500,000 or less | 5% |
| Over $500,000 but under $1.5 million | 5% of the first $500,000, plus 10% of the remaining amount |
| $1.5 million or more | 20% |
Let’s look at what this means for different home prices.
| Home Price | Minimum Down Payment |
|---|---|
| $450,000 | $22,500 |
| $550,000 | $30,000 |
| $650,000 | $40,000 |
| $750,000 | $50,000 |
| $850,000 | $60,000 |
| $950,000 | $70,000 |
These are the standard minimum requirements. Your mortgage lender may require a larger down payment depending on your financial circumstances.
For many first-time buyers, realizing they don’t need 20% saved can completely change how they approach their home search.
What Happens If You Put Less Than 20% Down?
If your down payment is less than 20%, you’ll generally need mortgage default insurance.
Often referred to as CMHC insurance, this protects your mortgage lender if you’re unable to make your payments.
Although the insurance adds to the overall cost of your mortgage, it also allows eligible buyers to enter the housing market without saving a full 20% down payment.
The premium can generally be added to your mortgage, although Ontario’s provincial sales tax on the premium must be paid separately.
A mortgage professional can help you compare different down payment scenarios and understand how they affect your monthly payments.
What If You’re Buying a New Construction Home?
Deposits for newly built homes can work differently from resale properties.
Builders typically establish their own deposit structures, which may require payments in stages rather than one deposit shortly after signing.
For example, a builder might require an initial deposit when signing the Agreement of Purchase and Sale, followed by additional deposits at specified intervals.
The amounts and payment schedules vary by builder and development.
Just like resale deposits, these payments generally contribute toward the purchase price and your overall down payment.
Before purchasing a new construction home, it’s important to understand the complete deposit schedule, financing requirements, and any additional costs associated with the purchase.
Don’t Forget About Closing Costs
Your deposit and down payment aren’t the only expenses to consider when purchasing your first home.
You’ll also need to budget for closing costs, which may include:
- Land transfer tax, where applicable.
- Legal fees and disbursements.
- Title insurance.
- Home inspection costs.
- Property tax and utility adjustments.
- Moving expenses.
- Provincial sales tax on mortgage default insurance, if applicable.
The good news is that eligible first-time buyers in Ontario may qualify for a provincial land transfer tax refund of up to $4,000, which can help reduce their closing expenses.
There are also savings programs worth exploring, including the First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan.
These programs may help eligible buyers build or access funds for their first purchase.
Should You Wait Until You Have 20% Saved?
This is a question without a one-size-fits-all answer.
A larger down payment can reduce your mortgage balance, lower your monthly payments, and potentially eliminate the need for mortgage default insurance.
However, waiting to save 20% isn’t necessarily the right decision for everyone.
Your income, existing debt, savings, monthly expenses, and long-term goals all play a role in determining when buying makes sense.
The most important thing isn’t simply reaching a particular savings target. It’s making sure you’re financially comfortable with the purchase.
A mortgage pre-approval is a great starting point, but it’s equally important to understand what you can realistically afford each month.
Ready to Buy Your First Home in Kitchener-Waterloo?
Buying your first home should be exciting, not overwhelming.
Whether you’ve been saving for years or are just beginning to explore your options, understanding deposits, down payments, and closing costs is an important first step.
As a REALTOR® serving Kitchener, Waterloo, Cambridge, and the surrounding communities, I work with buyers to navigate the entire purchasing process, from understanding their budget and finding the right property to preparing offers and getting the keys.
You don’t need to have everything figured out before starting the conversation.
Thinking about buying your first home? Let’s talk about what you need, what you can afford, and how to take that first step toward homeownership.
Mohsan Abdullah
REALTOR® | Century 21 Heritage House Ltd.
www.mohsanabdullah.ca
Disclaimer: Deposit terms, mortgage requirements, and government programs vary by transaction and individual eligibility. Consult a qualified mortgage professional and real estate lawyer for advice specific to your circumstances.