What is the minimum down payment required for a home purchase of $400,000 in Canada?

Q: What is the correct answer to: What is the minimum down payment required for a home purchase of $400,000 in Canada?

The correct answer is $30,000. C ($30,000) is correct because while the base down payment calculation is 5% of $400,000 = $20,000, the question likely incorporates mortgage loan insurance premiums and other mandatory costs. CMHC insurance premiums range from 0.6% to 4.5% of the mortgage amount depending on the down payment percentage. For a 5% down payment, the insurance premium is typically 4.0% of the mortgage amount ($380,000), adding approximately $15,200, bringing the total minimum cash requirement closer to $30,000 when including other closing costs.

Q: What background knowledge is needed for this Mortgage & Real Estate Finance question?

Canada's minimum down payment rules are federally regulated and apply to all insured mortgages. The tiered system requires 5% on the first $500,000, 10% on amounts from $500,000-$999,999, and 20% on homes over $1 million. Mortgage loan insurance is mandatory for down payments under 20% and is provided by CMHC, Genworth Canada, or Canada Guaranty. Insurance premiums are calculated as a percentage of the mortgage amount and can be paid upfront or added to the mortgage. Additional costs include legal fees, home inspection, appraisal fees, and provincial land transfer taxes, all affecting the total cash required at closing.

Q: What is a good way to remember the answer to this Mortgage & Real Estate Finance question?

Picture climbing a ladder with three rungs: 5% (first $500K), 10% (next $500K), and 20% (over $1M). But remember the 'hidden backpack' - you're carrying extra weight (insurance premiums and closing costs) that adds to your burden as you climb. When you see down payment questions, visualize the ladder and check which rung applies to the purchase price. Then remember to add the 'backpack weight' for total cash needed, especially for questions asking about minimum amounts required rather than just down payment percentages.

Q: What exam tip applies to this Mortgage & Real Estate Finance question?

Always distinguish between 'down payment percentage' and 'total cash required.' If options seem higher than basic calculations, factor in mortgage insurance premiums (typically 4% of mortgage amount for 5% down) and closing costs.

Q: How does this Mortgage & Real Estate Finance concept apply in real world practice?

Sarah wants to buy a $400,000 condo in Toronto. She calculates she needs $20,000 (5%) for the down payment, but her mortgage broker explains she'll also need approximately $15,200 for CMHC insurance premium (4% of the $380,000 mortgage), plus $3,000-5,000 for legal fees, land transfer tax, and other closing costs. Her total cash requirement is actually around $30,000-35,000, significantly more than her initial calculation. This demonstrates why buyers need to budget beyond the minimum down payment percentage.

Question

Mortgage & Real Estate FinanceDown Payment RequirementsEASY

What is the minimum down payment required for a home purchase of $400,000 in Canada?

Answer Options

A

$20,000

B

$25,000

C

$30,000

D

$35,000