Finding a property below market value is the ultimate goal for many investors and homebuyers in 2026. With the recent shifts in the Canadian real estate market, distressed properties have become a primary target. However, financing these unique transactions can sometimes cause confusion, leading many buyers to ask: do lenders require a larger down payment for power of sale homes?
The short answer is: Legally, no. Practically, it depends on the condition of the home.
If you are planning to purchase a distressed property this year, it is crucial to understand how banks evaluate these homes. Here is exactly what you need to know about financing, appraisals, and down payments, brought to you by the experts at Power of Sale Plus.
The Standard Down Payment Rules Apply
Under traditional Canadian mortgage guidelines, lenders view a Power of Sale (POS) transaction just like any other resale purchase. If the home is in good, livable condition, your minimum down payment requirements remain the same:
Purchase price of $500,000 or less: 5% minimum down payment.
Purchase price of $500,000 to $1,499,999: 5% on the first $500,000, and 10% on the remaining portion.
Purchase price of $1.5 Million and over: 20% minimum down payment.
Investment Properties (Non-Owner Occupied): 20% minimum down payment across the board.
If you have a standard pre-approval and the home is in good shape, your regular down payment is perfectly fine.
Why You Might Actually Need a Larger Down Payment
While the rules don't change, the nature of Power of Sale properties often forces buyers to bring more cash to the closing table. Here are the three main reasons why:
1. The "As-Is, Where-Is" Clause and Mortgage Insurance
Every Power of Sale property is sold in "as-is, where-is" condition. The selling bank will not make repairs, and they will not guarantee the working order of appliances, plumbing, or electrical systems.
If the previous owner left the property in severe disrepair (e.g., missing copper wiring, a gutted kitchen, or mold), default insurers like CMHC or Sagen may deem the home "uninsurable" or "unhabitable." If a property cannot get mortgage default insurance, traditional A-lenders (major banks) will require a conventional mortgage, meaning you must put down a minimum of 20%, regardless of the purchase price.
2. Appraisal Shortfalls
When you buy a home, your lender will finance the purchase based on the appraised value, not necessarily the purchase price.
Because distressed properties can have hidden damages, a bank appraiser might value the home significantly lower than what you agreed to pay for it. If you agree to buy a POS home for $700,000, but the appraiser values it at $650,000 due to property damage, the lender will only finance based on the $650,000 figure. You will be responsible for covering the $50,000 difference in cash, effectively forcing you to produce a larger down payment out of pocket.
3. Pivoting to Alternative Lenders
If an A-lender refuses to finance the home entirely due to its condition, you may need to secure financing through a B-lender or a Private Lender to close the deal and do the renovations. Private lenders take on more risk, and as a result, they typically require a 25% to 35% down payment to fund the purchase.
Deposit vs. Down Payment in a Power of Sale
It is also important not to confuse your down payment with your deposit (the money provided within 24 hours of an accepted offer).
When a bank is selling a property under Power of Sale, they want a secure, hassle-free transaction. To make your offer stand out—especially if you are competing against seasoned investors—your real estate agent may recommend providing a larger upfront deposit (often 5% or more of the purchase price). While this deposit eventually forms part of your total down payment on closing day, you need to have that cash liquid and available immediately when making your offer.
How to Protect Yourself When Buying
Have a Cash Buffer: Never buy a Power of Sale home with your absolute maximum budget. Have extra cash set aside in case the appraisal comes in low.
Include Financing Conditions: Unless you are paying cash or have a guaranteed private loan, try to include a financing condition so your lender can appraise the home's "as-is" condition before you are legally bound to buy it.
Use a Specialized Platform: Finding these properties before they get bid up is the key to getting a deal where the math actually makes sense.
Find Your Next Investment on Power of Sale Plus
If you are ready to navigate the distressed property market, you need a tool that filters out the noise. Standard real estate portals rarely highlight which homes are bank-owned.
Power of Sale Plus is Ontario’s premier platform for finding the latest, up-to-date distressed real estate listings. Whether you are a first-time buyer looking for a fixer-upper or an investor seeking your next flip, we aggregate the hottest Power of Sale opportunities in the market so you can act fast.
Browse the latest listings today at http://powerofsaleplus.ca/ and find your next real estate deal!
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