If you are a first-time home buyer, you’ve probably spent some time searching for home buying tips online.

In that case, you’ve probably come across the 20% down payment rule.

Why a 20 percent deposit?

The most common suggestion for a down payment on a new house is to pay 20% of the purchasing price. The logic behind this advice is that a 20 percent deposit will demonstrate financial stability and discipline. It shows that you have been saving for a long-term goal. It can also get you more favourable rates from mortgage lenders.

If you have enough for a 20% down payment, you can get better loan rates. Plus, you won’t have to worry about the added cost of mortgage loan insurance (it is only required for purchases with a down payment of less than 20%).

In a seller’s market, a large down payment can also make your offer more favourable in a bidding war, especially if the seller could use the extra cash.

Is a smaller down payment acceptable?

These days, with the price of housing so high, a 20% down payment can be a lot for anybody. It is common practice to offer much lower down payments.

There are actually financial benefits to be found in making a lower down payment (as low as 3%), even if you have the money available to pay a larger sum.

On average, houses in Canada have an appreciation rate of over 6% per year. And that appreciation value is not impacted by how much money you put down on the house. So, no matter what your down payment, you will experience the same increase in equity.

If you are purchasing a home as an investment, a smaller down payment could be a smart move because it would yield a higher return.

Making a smaller down payment can also free up extra money for home repairs or other investments.

Find your happy medium

There is a lot of flexibility in making a down payment on a house. And, ultimately, the choice is up to you. Whether you want the security of 20 percent, or the investment opportunities of 3, speaking to your local real estate expert and mortgage advisor will help you to decide which option suits you best.