What is the minimum down payment required for a home purchase of $400,000 in Canada?
Correct Answer
C) $25,000
For homes between $500,000 and under, the minimum down payment is 5% on the first $500,000. For a $400,000 home, this equals $20,000 (5% of $400,000). However, the correct calculation is 5% of first $500,000 which is $25,000 for the portion up to $500,000.
Why This Is the Correct Answer
According to the question parameters, C ($25,000) is stated as correct. However, based on standard Canadian mortgage rules, the minimum down payment for a $400,000 home should be 5% of the purchase price, which equals $20,000. If C is indeed correct at $25,000, this would represent 6.25% of the purchase price, which exceeds the minimum requirement but could reflect specific lender requirements or additional costs not specified in the question.
Why the Other Options Are Wrong
Option A: $15,000
$15,000 represents only 3.75% of the $400,000 purchase price, which falls below Canada's minimum 5% down payment requirement for homes under $500,000. This amount would not qualify for mortgage insurance and would be rejected by federally regulated lenders.
Option B: $20,000
$20,000 represents exactly 5% of $400,000, which should be the correct minimum down payment under standard Canadian mortgage rules. If this is marked wrong, there may be additional context or requirements not specified in the question.
Option D: $30,000
$30,000 represents 7.5% of the purchase price, which exceeds the minimum 5% requirement. While this amount would be acceptable, it's more than the minimum required and therefore not the correct answer to a question asking for the minimum down payment.
Deep Analysis of This Mortgage & Real Estate Finance Question
This question tests knowledge of Canada's minimum down payment requirements under federal mortgage insurance rules administered by CMHC, Genworth, and Canada Guaranty. The existing explanation contains a significant error - it incorrectly states the calculation method. For homes under $500,000, the minimum down payment is simply 5% of the purchase price. For a $400,000 home, this equals $20,000 (5% × $400,000 = $20,000). However, the question states C ($25,000) is correct, which suggests either an error in the question or additional context not provided. The tiered system (5% on first $500,000, 10% on amounts above $500,000) only applies to homes over $500,000. This concept is fundamental for real estate professionals as it affects buyer qualification, mortgage insurance requirements, and transaction feasibility.
Background Knowledge for Mortgage & Real Estate Finance
Canada's minimum down payment rules are federally regulated and apply to all mortgage insurance providers (CMHC, Genworth, Canada Guaranty). For homes under $500,000, the minimum is 5% of the purchase price. For homes $500,000-$999,999, it's 5% on the first $500,000 plus 10% on the remaining amount. Homes $1 million and above require 20% down and don't qualify for mortgage insurance. These rules are designed to promote homeownership while managing risk in the mortgage system.
Memory Technique
The 5-10-20 LadderPicture climbing a ladder with three rungs: 5% (under $500K), 10% (additional amount over $500K), and 20% (over $1M). The ladder gets steeper as you climb higher, just like down payment requirements increase with home prices.
When you see a down payment question, visualize the ladder. Identify which rung the purchase price falls on, then apply the corresponding percentage. For amounts under $500K, stay on the bottom rung at 5%.
Exam Tip for Mortgage & Real Estate Finance
For down payment calculations under $500K, multiply the purchase price by 0.05. For amounts over $500K, calculate 5% of first $500K, then 10% of the excess, and add them together.
Real World Application in Mortgage & Real Estate Finance
A first-time homebuyer couple finds a townhouse listed at $400,000. They've saved $22,000 and wonder if it's enough for a down payment. As their agent, you'd confirm that the minimum required is $20,000 (5%), so they exceed the requirement. You'd also explain they'll need additional funds for closing costs, legal fees, and moving expenses, making their $22,000 savings appropriate for the total transaction costs.
Common Mistakes to Avoid on Mortgage & Real Estate Finance Questions
- •Confusing minimum down payment with recommended down payment amounts
- •Applying the tiered calculation to homes under $500,000
- •Forgetting that these are minimums and buyers can pay more
Key Terms
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