Saving for a down payment on a home can be challenging but, with careful planning and discipline, this important milestone will become much more easily achievable. Following are 10 helpful tips to get you started on your homeownership journey as soon as possible.
1. Set a Clear Goal. Determine the amount you need for a down payment. The minimum down payment when buying a home anywhere in the country is 5% of the purchase price for a property valued at $500,000 or less and 10% for the portion of the purchase price above $500,000. So if, for example, you’re buying a home for $750,000, your minimum down payment is $25,000 for the first $500,000 (5%) and $25,000 for the remaining $250,000 (10%) = $50,000 minimum down payment.
2. Create a Budget. Track your income and expenses to see where you can cut back. Redirect these savings towards your down payment fund.
3. Open a Separate Savings Account. Keep your down payment funds separate to avoid the temptation to spend them. Consider a high-interest savings account to earn more on your savings. Or, if you have a longer-term plan in place to purchase a home, open a first home savings account (FHSA). An FHSA allows contributions of $8,000 a year for five years for a lifetime maximum contribution amount of $40,000 ($80,000 per couple). It’s, therefore, best suited for people looking to buy a home a few years down the road.
4. Automate Savings. Set up automatic transfers to your savings account each payday. This ensures you save consistently without having to think about it.
5. Reduce Debt. Pay down high-interest debt to free up more money for savings. This also improves your credit score, which can help you secure a lower mortgage rate.
6. Cut Unnecessary Expenses. Review your monthly expenses and identify areas where you can cut back, such as dining out, subscriptions and entertainment. Upfront sacrifices will really pay off in the long run.
7. Take Advantage of Government Programs. Look into programs like the Home Buyers’ Plan (HBP), which allows you to withdraw up to $60,000 ($120,000 as a couple) from your RRSP tax-free to buy or build a qualifying home. Your mortgage agent will be able to point out any programs that may benefit you when purchasing your first home.
8. Save Windfalls. Put any bonuses, tax refunds and other unexpected funds directly into your down payment savings.
9. Earn Extra Income. Consider taking on a part-time job or side hustle to boost your savings. Many people turn their hobbies into extra earnings via an online business.
10. Stay Motivated. Keep your goal in sight and remind yourself of the benefits of owning a home. Be sure to celebrate milestones along the way to stay motivated.
By following these tips and staying disciplined, you can make steady progress towards saving for a down payment on your first home. With determination and smart financial management, homeownership can be within your reach sooner than you may think.
Have questions about saving your down payment or buying your first home? Answers are a call or email away!