HOW TO SAVE FOR A DOWN PAYMENT
Tired of renting? Planning to buy a home but worried about financing? We get it! We have all the tips and tricks you need to save up for a down payment (and to do it fast) for your dream home.
Saving up for a down payment at first can feel overwhelming but when you have a plan and a goal it adds up very quickly (trust us on that one). So let’s get saving!
HOW TO SAVE FOR A DOWN PAYMENT
The biggest advice we give clients is to start saving early. Any money you can save put it into a savings account and do not touch it.
1. Save tax rebates
If you have a good year on your taxes and you receive a rebate from the government, save that right away in to a savings account.
2. Pay the minimum on debts to save for a house
Is it advisable to do so? It depends on your scenario. If your debts are manageable and your mortgage qualifications are there, then absolutely yes! You can just pay the minimum amount that’s required and save up money for your down payment to get into the house sooner. Then, once you purchase your house, you can start paying off your debt as much as you want at that time.
The longer you take to save up for a down payment, the more likely you are missing out on any equity growth or debt pay down on your mortgage. Another thing to keep in mind is the rent you are paying which could be equity being built into your home. So have a conversation with your lender and figure out if you qualify for your mortgage with the debts that you currently have.
The key is to get into a home, the sooner the better. So you can start paying it down sooner, and start building equity in your home sooner.
3. Sell any extra assets
If you have more vehicle(s) than you need, you can sell them to get some quick cash. If you have other things that you consider to have some tangible value, you can also use that (e.g. snowmobile, boats etc).
4. Use your stocks, bonds, and RRSP
RRSP is a really great one to start using towards down payment if you are a first time home buyer. You are allowed now up to $35,000 out as a first time home buyer based on the new incentive program.
5. Ask help from family
This is the one a lot of people don’t consider. Check in with your family to see if they can gift you the down payment. People realize that it is tough for a first time home buyer to pay rent, save for a downpayment, and pay for other obligations that you might have. Your family might be willing to help you out. Just ask. There’s no harm in asking.
Now that you know how to save, let’s figure out how much to save.
The minimum required down payment for a house is 5% of the purchase price. You need to save at least 5% or get it from any other sources that we mentioned above.
Is it better to save up for 20%?
Yes and no. It really just depends on everyone’s scenario and everyone’s scenario is different.
If you are really close to your 20% and you only need an extra 1 or 2%, then definitely do that because there’s an added benefit. When you put 20% down, you are saving yourself the default insurance cost. Default insurance cost gets tacked on your mortgage and there is an interest implication on that extra charge on your mortgage that you have to pay back over the life of the loan.
If you can only save up to 5% that is perfectly fine as well. We advice clients not to wait to save up to 20% because it could take them years. The time that you wait to save 20% can actually cost you a lot more money in rent, any equity that you would have paid down on your mortgage, or the market could pick up. You might be losing more than you would have gained by saving 20%.
Some lenders also have their own assistant programs where they can give you a deposit loan to get you in to a home sooner. The only stipulation is that it has to be paid off prior to possession.
Other ways to save money:
Cut some expenses in your budget. You will be amazed to see how much money you find once you start paying attention to what you are spending your money on. Here are some ideas to tighten your spending temporarily while you save money for your down payment:
- Save eating out for only special occasions.try to avoid drive throughs, coffee, gas station drinks etc and you will be amazed to see how quickly you can save some money.
- Save money at the grocery store
- Grocery shop once per week – frequent trips to the store can cause you way to spend unnecessary money.
- Meal plan around what is on sale that week.
- Buy store brand vs name brand
- Cancel subscriptions – go through your subscriptions and cancel anything that you do not need.
- Lower your utilities if you can.
- Find fun things to do in your city that are free before planning an expensive date night.
We want to work with you and get you in your dream house. We know saving money for a downpayment is an added stress but once we sit down and figure out all the options, there’s a lot we can do to help you. Lets turn your homeownership goals to reality.
What’s your favourite way to save money for a downpayment? Let us know in the comments below.