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Second homes and rental properties have their own down payment requirements. Here’s what to expect when buying a second property.
It’s not only first-time home buyers who have to adhere to Canada’s down payment rules. When buying a second property, current home owners must also meet the country’s down payment requirements, which can differ from the rules applied to single-property ownership.
So, how much of a down payment do you need for a second home? That depends on a few factors, including whether or not you intend to live at the property.
Every Canadian home buyer is required to have a minimum down payment when purchasing property. A down payment is the money provided up front towards the purchase of the home, and it is directly tied to the value of the property.
When buying a home, the down payment rules in Canada are as follows:
| Purchase price | Minimum down payment required |
|---|---|
| $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 |
If you’re buying a home priced under $1 million and your down payment is less than 20%, you’ll need to purchase mortgage default insurance, also known as mortgage loan insurance—which protects the lender if you can’t make your mortgage payments. Using a mortgage down payment calculator is the fastest and simplest way to figure out how much money you will need for your home down payment.
Starting on Dec. 15, 2024, buyers will be able to get an insured mortgage for homes valued at up to $1.5 million, up from the previous limit of $1 million. Currently, homes worth $1 million or more require a down payment of 20% and are not eligible for mortgage default insurance. Along with raising the cap for insured mortgages, the government has announced new down payment requirements for homes valued at up to $1.5 million. Effective Dec. 15, home buyers will need a down payment of 5% of the first $500,000 of the purchase, and 10% of the portion of the purchase price between $500,000 and $1.5 million. Canadians will need a down payment of 20% for a home valued at $1.5 million or more.
Contrary to popular belief, there’s no blanket 20% down payment requirement for second-home purchases in Canada. In fact, the down payment rules for a second home are similar to those listed above for single-property ownership, as long as the second home will be owner-occupied, meaning the owner will be living in it.
“You can purchase a second home with 5% down as long as the property is intended for family use throughout the year and the mortgage is under $500,000,” says Samantha Brookes, CEO of Toronto-based Mortgages of Canada.
The 5% down payment requirement applies to second homes with one or two units in them. For properties with three or four units, the minimum down payment jumps to 10%.
Buildings with five or more units are considered commercial buildings, and they require a commercial mortgage. Depending on the property’s location and the buyer’s cash flow, lenders may require a buyer to have a down payment of 20% to 35% on commercial properties, according to Brookes.
Here are the minimum down payment requirements for an owner-occupied second home in Canada.
| Number of units in second home | Owner-occupied | Minimum down payment required |
|---|---|---|
| 1 or 2 units | Yes | 5% of the purchase price (for homes less than $500,000) |
| 3 or 4 units | Yes | 10% of the purchase price |
| 5 or more units | N/A (Commercial building) | 20 to 35% of the purchase price (varies by lender) |
Lenders and mortgage insurance providers have their own criteria for what qualifies as an owner-occupied residence. For example, a lender may require you to list the home as your principal residence. The Canada Housing and Mortgage Corporation (CMHC), Canada’s public mortgage insurance provider, defines owner-occupied as having at least one family housing unit that is occupied rent-free by the borrower, a person related to the borrower by marriage or common-law partnership, or any legal parent or child.
It’s essential to confirm your lender’s specific provisions to avoid breaking the terms of your mortgage contract.
Different rules apply when the second property is going to be used as a non-owner-occupied rental, meaning the owner intends to rent out all of the units in the building.
In general, it’s more difficult to obtain financing for these types of purchases, and buyers need a minimum down payment of 20%. This applies to all rentals with four or fewer units.
Here are the minimum down payment requirements for a non-owner-occupied second home (or rental) in Canada.
| Number of units in second home | Owner-occupied | Minimum down payment required |
|---|---|---|
| 1 or 2 units | No | 20% of the purchase price |
| 3 or 4 units | No | 20% of the purchase price |
| 5 or more units | N/A (Commercial building) | 20 to 35% of the purchase price (varies by lender) |
Before buying a second home, consider how the size of your down payment will impact your finances overall. One consideration is the added cost of mortgage default insurance, which protects your lender if you default on your mortgage.
Canada’s mortgage default insurance providers have specific qualifying criteria for second homes. CMHC provides insurance on a maximum of one home per borrower at any given time. This means a mortgage on a non-owner-occupied rental or on a second home for personal use, such as a cottage or vacation property, is not insurable with CMHC. However, Canada Guaranty and Sagen, Canada’s two private insurers, offer mortgage default insurance on second homes, with a 5% down payment requirement.
To purchase their first home with a top-tier lender such as a major bank, buyers must often prove that their down payment is not borrowed money. This is not the case with second homes. While it may be financially prudent to save enough money for the down payment on a second property, it is common for buyers to finance (borrow money for) the down payment.
There are different options available to finance a down payment on a second home, including:
To find out more about how to finance the purchase of a second home, speak with an advisor or a mortgage broker.
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