By Jaclyn Law on May 20, 2022
Estimated reading time: 5 minutes

Home buyers, what if you can’t make a 20% down payment?

By Jaclyn Law on May 20, 2022
Estimated reading time: 5 minutes

In a hot housing market, some first-time buyers have trouble saving a 20% down payment. For them, co-ownership with investors could be the answer.

Front door of a home with a bicycle parked in front

Photo by Christian Koch from Unsplash

If you want to buy your first home but feel squeezed out of the market by high prices, the idea of co-ownership may already be on your mind (and no, you don’t have to live with friends or family to co-own real estate). Even before Canadian home prices shot up during the pandemic, over a quarter of buyers—especially millennials and Gen Z—were co-investing with family members, many sourcing from the Bank of Mom and Dad.

For some Canadians, co-investing could bring the dream of home ownership within reach—but what if you don’t have friends and relatives to pool money with, or you’d rather not share your living space with other people? In that case, you have another option: co-owning your home with Ourboro, a Canadian real estate investment company that helps first-time buyers get into the market—currently, it works with buyers looking in the Greater Toronto Area (GTA).

Before we dig into how Ourboro’s co-ownership model works, let’s look at what it takes to buy a home on your own.

What is the minimum down payment for a home?

To buy a home in Canada, you must have a minimum down payment of at least 5%, but in many cases it’s 20%. This handy chart breaks down the minimum amounts by the price of the home.

Home purchase price	Minimum down payment
$500,000 or less	5% of the purchase price
$500,000 to $999,999	5% of the first $500,000 of the purchase price; 10% of the portion of the purchase price above $500,000
$1 million or more	20% of the purchase price

You can buy a home with as little as 5% down, but if your down payment is below 20% of your home’s purchase price, you’ll need to buy mortgage default insurance (also called mortgage loan insurance). This coverage protects your mortgage lender in case you fail to keep up your payments. The premium for mortgage loan insurance ranges from 0.6% to 4%, depending on how much you borrow compared to the value of your home, and it’s typically added to the mortgage principle—which means you’ll also pay interest on this premium.

The exceptions are homes over $1 million, for which mortgage insurance is not available. In other words, you must have 20% saved in order to buy a property over $1 million—not an unlikely scenario, given that the average selling price of a house in the GTA was over $1.2 million in April 2022; in Vancouver, it was over $1.4 million. You won’t be able to buy the home without it.

What if your down payment is below 20%?

If your down payment isn’t enough for the home you want to purchase, you have a few options:

Lower your budget
Save for a larger down payment and hope that home prices don’t increase
Stick to your plan and pursue co-ownership

Should you wait for housing prices to go down?

You might be waiting a long time. With interest rates rising, home sales in Canada have declined year-over-year, but selling prices remain stubbornly high in the most expensive housing markets, mainly in Ontario and British Columbia.

For first-timers hoping to get into the market, it can be frustrating and demoralizing to watch a nest egg shrink in proportion to rising prices—and that’s before other home-buying expenses like closing costs and land transfer tax come into play.

First-time home buyers who need help to afford a property often turn to family members or friends, but that’s not always an appealing or viable option. Nor are private mortgage lenders, which can charge exorbitant interest rates that could prolong debt repayment.

So what can you do if you’ve saved up a substantial nest egg but need just a little help to reach that 20% goal? That’s where Ourboro comes in. This real estate investment firm recognizes that breaking into certain housing markets can be very hard without financial assistance—even if you have a stable income and significant savings. Ourboro helps first-time buyers become home owners sooner by filling what it calls “the down payment gap.”

How does co-ownership with Ourboro work?

Here’s how it works: Buyers save up a down payment of 5% to 15%, and Ourboro tops it up (to a maximum of $250,000) to reach 20%. This is an investment, not a loan, so there are no monthly payments or interest charges. Ourboro receives an equity share or percentage in the home equivalent to its contribution, and it makes a return on its investment only from the property, after it has appreciated in value.

In addition to buying a home sooner, potential benefits of co-investing with Ourboro include being able to buy in your preferred neighbourhood, having your home to yourself, and maybe even having extra savings left over for life’s other adventures. And, with a 20% down payment, you can avoid paying the added expense of mortgage loan insurance.

What if you want to sell your home?

The company’s maximum investment term is 10 years, during which home owners can sell their home whenever they want, or offer to buy the company’s share based on fair market value. Until then, Ourboro helps preserve and increase the home’s value with a range of programs and services, including a complimentary home maintenance service and financial support on a rainy day.

Currently, Ourboro works with home buyers looking to purchase a resale property as a principal residence in the GTA. Buyers must be citizens or permanent residents of Canada and get pre-approved for a mortgage with one of Ourboro’s lending partners.

Find out if you’re eligible to make your home-owning dreams a reality through Ourboro.

This article is sponsored.

This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers.

About Jaclyn Law

Jaclyn Law is MoneySense’s managing editor. She has worked in Canadian media for over 20 years, including editor roles at Chatelaine and Abilities. Jaclyn completed the Canadian Securities Course in 2022.

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