How Can You Get Down Payment Assistance?

Saving up for a house can be a significant challenge. Between high student debt, challenging credit score requirements, and the ballooning cost of living, many Canadians have difficulty setting aside money to afford a house.

Fortunately, lenders recognize this problem and have been offering down payment assistance programs. These programs help Canadians afford their first down payment. They are typically shared equity mortgages which means the lenders will share the upside and downside of your property. There's usually a waiting list for these programs, and successful applicants will receive 5-15% of the property value to use as a down payment. The catch is that the percentage generally must be paid back after 20 years or when the property is sold. Many homebuyers can benefit from these helpful programs if they meet specific requirements.

Saving for a down payment can be one of the biggest barriers to buying a home, especially for first-time buyers dealing with high housing prices, debt payments, and rising living costs. Down payment assistance programs are designed to help eligible buyers bridge that gap by providing support toward the upfront cost of buying a home.

These programs can take several forms, including interest-free loans, repayable loans, forgivable loans, grants, shared-equity mortgages, and private co-ownership arrangements. Some programs provide a fixed dollar amount, while others provide a percentage of the home's purchase price. Depending on the program, the assistance may need to be repaid after a set number of years, when the home is sold, when the buyer refinances, or when the buyer no longer uses the property as their primary residence.

Eligibility varies by province, municipality, and program provider, but down payment assistance programs are usually aimed at low- to moderate-income households and first-time home buyers. In general, applicants may need to:

• Have household income below the program's limit;
• Buy a home below the program's maximum purchase price;
• Qualify for a mortgage from an approved lender;
• Be a Canadian citizen, permanent resident, or otherwise legally eligible resident;
• Use the home as their primary residence;
• Meet first-time home buyer requirements, where applicable; and
• Contribute some of their own savings toward the purchase.

Program rules can change frequently, and many programs have limited funding, waitlists, local residency requirements, or restrictions on eligible properties. Buyers should confirm the latest income limits, purchase price limits, repayment rules, and application deadlines directly with the program provider before relying on a down payment assistance program.

Many down payment assistance programs are not province-wide. Some are limited to certain municipalities, specific developments, government-owned homes, or annual funding windows.

If you qualify for down payment assistance, the next step is to research the options available to you. Below is a list of the programs offered federally and by municipalities in some provinces. As mentioned above, always double-check to ensure nothing has changed with the program. If you do not qualify for any of the options and aren’t a first-time home buyer, then contributing to your TFSA can be a good option to save for a down payment.

The First Home Savings Account (FHSA) is a registered account that helps first-time home buyers save for a down payment. While it is not a direct grant or loan, it can make saving for a home easier because contributions are generally tax-deductible, and qualifying withdrawals used to buy or build a first home are tax-free.

You can contribute up to $8,000 per year to an FHSA, up to a lifetime contribution limit of $40,000. Unused FHSA participation room can be carried forward, subject to CRA rules. The account can stay open for up to 15 years, or until the end of the year after you make your first qualifying withdrawal, whichever comes first.

The FHSA can be especially useful for buyers who expect to purchase a home in the next few years. Unlike the RRSP Home Buyers' Plan, qualifying FHSA withdrawals do not need to be repaid. Buyers may also be able to use both an FHSA withdrawal and the RRSP Home Buyers' Plan for the same qualifying home purchase.

To open an FHSA, you must generally be a Canadian resident, at least 18 years old, and a first-time home buyer under the FHSA rules. A qualifying withdrawal must be used to buy or build a qualifying home, and the buyer must meet CRA's first-time home buyer conditions at the time of withdrawal.

For example, a buyer with a 32% marginal tax rate who contributes the full $40,000 lifetime FHSA limit could reduce their income tax by about $12,800, not including the benefit of tax-free investment growth. The actual tax savings depend on the buyer's income, province, contribution timing, and investment returns.

The Home Buyers' Plan (HBP) allows eligible home buyers to withdraw money from their Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. While the HBP is not a direct government grant, it can help buyers use their existing RRSP savings toward a down payment without paying tax on the withdrawal at the time the funds are taken out.

Under the HBP, eligible buyers can withdraw up to $60,000 from their RRSP. If two spouses or common-law partners are buying a home together and both qualify, each person may be able to withdraw up to $60,000 from their own RRSP, for a combined total of up to $120,000.

Unlike the FHSA, HBP withdrawals must be repaid. The withdrawn amount is generally repaid to the buyer's RRSP over a 15-year period. If the required annual repayment is not made, that amount is added to the buyer's taxable income for the year.

The HBP can be useful for buyers who already have RRSP savings and want to increase their available down payment. However, buyers should consider the long-term impact of withdrawing from retirement savings. Using the HBP can help with the upfront cost of buying a home, but it also creates a future repayment obligation.

Buyers may also be able to use both the HBP and a qualifying FHSA withdrawal for the same home purchase, as long as they meet the conditions for both programs.

The Home Buyers' Amount is not a down payment assistance program because it does not provide money before or at closing. Instead, it is a federal non-refundable tax credit that eligible home buyers can claim for the year they purchase a qualifying home.

Eligible buyers can claim up to $10,000 on their tax return, which can reduce federal tax payable by up to $1,500. This will not help directly with the down payment or closing costs, but it can help replenish savings after a buyer has used cash for the down payment, land transfer tax, legal fees, moving costs, and other purchase-related expenses.

Because this is a non-refundable tax credit, it can only reduce taxes payable. Buyers will not receive the full benefit if they do not owe enough federal tax for the year.

Ourboro offers home co-ownership, where they co-invest in your home by contributing 5% up to 15% of your home's purchase price as a down payment, up to a maximum of $250,000. Your ownership share is based on your percentage of the down payment contributed. If you make a 5% down payment and Outboro makes a 15% down payment, then you would have a 25% share of your home's appreciation.

Currently, Ourboro is only available for homes located within the Greater Toronto Area (GTA) and parts of Southwestern Ontario, such as Hamilton and London.

Ourboro is currently available in:

• Toronto
• Peel Region
• York Region
• Halton Region
• Durham Region
• Dufferin County
• Simcoe County
• Guelph
• Kitchener-Waterloo
• London
• Hamilton

From completing an application to closing on a home, co-buying with Ourboro can take 2-4 months. Much of this time is taken up by the mortgage pre-approval and home search process, which would be the same for any traditional homebuyer.

The minimum down payment that you're required to contribute is 5% of the home's purchase price. You'll also need to fully cover all closing costs, except land transfer tax, which is split according to your stake in the home. Ourboro works with Equitable Bank and Community Trust as its mortgage lending partners, and you'll need to use one of these partners through Ourboro's third-party mortgage broker.

Ourboro requires you to pay them back within 30 years, but you can choose to buy out Ourboro's share at market value at any time before then — either by selling the home or using your own money. If you sell, the principal you've paid down on the mortgage is yours to keep, no matter what happens to the home's value.

The maximum you can lose with Ourboro is your initial down payment plus the amount you've paid toward your mortgage principal. If the home's value drops significantly, you won't owe Ourboro anything beyond these amounts.

Share of Future Property Appreciation With Ourboro

Source: Ourboro

In Canada, home buyers who make a down payment of less than 20% need mortgage default insurance. Uninsured mortgages are normally limited to a maximum loan-to-value ratio of 80%, meaning the buyer must have at least 20% equity in the home.

Some shared-equity down payment assistance programs can help buyers reach that 20% threshold without the buyer personally contributing the full amount. In 2022, OSFI clarified that federally regulated financial institutions may offer uninsured mortgages with shared-equity features if the mortgage is in first lien position and the shared-equity provider's contribution is a true equity investment, not a loan.

This means a buyer may be able to contribute as little as 5% from their own funds and use a qualifying shared-equity contribution to bring the total equity in the home to at least 20%. If the lender accepts the structure, the mortgage may be treated as uninsured, allowing the buyer to avoid mortgage default insurance premiums and some insured-mortgage restrictions.

However, this does not apply to every down payment assistance program. Forgivable loans, repayable loans, grants, and municipal assistance programs may be treated differently by lenders and mortgage insurers. Buyers should confirm with their lender whether a specific program can be used toward the down payment and whether the resulting mortgage will be insured or uninsured.

The federal First-Time Home Buyer Incentive is no longer available to new applicants. CMHC stopped accepting new applications on March 21, 2024, and no new approvals were granted after March 31, 2024. Buyers who have already used the program must still repay the shared-equity amount according to the program rules.

The First-Time Home Buyer Incentive was a shared-equity mortgage program that helped eligible first-time buyers reduce their monthly mortgage payments. It provided 5% or 10% of the purchase price in exchange for the government sharing in the increase or decrease in the home's value. The buyer had to repay the same percentage of the property's value when the home was sold or after 25 years.

Lotly's down payment co-investment program appears no longer accepting new buyers.

Lotly matched buyers with investors so they could buy a home with a smaller down payment. Buyers needed only a 5% down payment, and Lotly investors contributed up to a 15% down payment (up to $250,000), bringing the total to 20% of the purchase price. This let the mortgage be uninsured, saving buyers CMHC default insurance premiums. Buyers had to repay the investors within 10 years, either from their own funds or by selling the home.

Homeowners still shared in the home's appreciation, with their split based on how much they had contributed to the down payment — from 51% of the upside (or downside) at a 5% down payment, up to 84% at a 15% down payment. They also kept the equity built through mortgage principal payments and their initial contribution. Investors took the remaining share, meaning they also absorbed part of any loss if the home's value fell. For example, a buyer who put down 5% kept 51% of appreciation: on a $100,000 gain, their equity rose by $51,000 (before principal payments), with investors holding the other $49,000. The most a buyer could lose was their down payment.

Lotly operated in the GTA, Kitchener, and Waterloo. For buyers it charged a 3.5% fee capped at $5,000; for investors, a 2% initiation fee on the property value plus a 2% annual management fee on the invested amount.

Down payment assistance is a program that helps you afford the down payment of your home purchase. The shared equity model decreases your monthly mortgage payments but can increase the amount you pay when you sell your house. Another strategy to help afford a home is to partner with a spouse or friend through a joint mortgage.