When thinking about buying a home it can sometimes feel like you’re a lifetime away from unlocking the front door to your future. There are no two ways about it, property in Canada is not cheap!
A minimum of 5% of the property price is required as a down payment, with 20% a more desirable figure to shoot for. At first glance, this can seem like a huge lump of cash to come up with, perhaps even an impossible goal.
Fortunately, all hope is not lost! Below we look at how to save for a down payment and discuss a variety of methods that we believe can be used by anyone.
Budget, Prioritize and Downsize
The first step is to make a plan of action, taking into consideration the timescale and total cost. Saving for your down payment must become top priority, and a few sacrifices will need to be made. Start by creating a monthly budget for your current lifestyle and see if you can pinpoint where you can save money each month.
There are many aspects of life that can be adjusted in order to save cash here and there:
- Trade fancy vacations for something more humble, such as camping or a staycation.
- Eat out less and create a weekly food planner to ensure you stick to your budget.
- Rather than going out, invite friends over for drinks—you could even surprise them with your own homemade beer or wine!
- Instead of buying new items such as books, DVDs and even clothes, buy second hand, or visit the library.
Sell Your Car
Vehicles cost people thousands of dollars over the course of the year. Gas, maintenance, insurance and tax all add up, with many spending almost $9,000 per year. Public transport, cycling or walking are all great alternatives, and can save you a lot of cash. In 2-car households, this is a must, and the price you get for selling your car can go straight into your savings.
Pay Off Your Debts
Credit cards, bank loans and the $20 you owe your friend should all be paid off before you start planning to save for a down payment. Indeed, you may be refused a mortgage if you have too much debt, but there are more reasons for getting out of the red. Rather than giving your money to someone else each month, you’ll be able to set it aside.
Move Out of Your Current Place
This might not be applicable to everyone, but some might find they can save more by moving elsewhere. Couples living separately, for example, can benefit by moving in together, rather than both paying rent each month. Living in an expensive part of town? Try looking at places in more affordable areas, and maybe consider downsizing.
You can save thousands of dollars each year on rent by temporarily moving back home. If the thought of living with your parents or in-laws is troubling, why not try life in a totally different country? One with far more affordable living costs. In this digital age, many jobs allow you to work online, from anywhere in the world.
Rather than just saving your cash in any old savings account, consider alternatives. The Tax-Free Savings Account (TFSA) is an excellent solution. With any cash you put in your TFSA exempt from income tax, you’re able to put cash aside each month completely tax free.
You may consider automatic investment or savings plans. These include Mutual Funds and Fixed-Term Investments such as Guaranteed Investment Contracts (GICs) and Canada Savings Bonds (CBS). Such plans can steadily help your savings grow, though it’s worth seeking advice from a financial advisor if you’re unfamiliar with these methods, as there are potential downsides.
High Interest Savings Accounts are also worth looking into, and there are many options available. Often linked to your bank account directly, they make it easier and quicker to access your money when you need it compared to automatic investment plans and bonds.
Participate in the Home Buyer’s Plan (HBP)
If you already pay into a Registered Retirement Savings Plan (RRSP), you can use the Home Buyers’ Plan to withdraw as much as $25,000 from it. This can add a huge chunk to your savings, and if you’re a couple planning to buy a home, you can both withdraw.
The money must be paid back within 15 years, and you can’t have owned property in the last five years. The only catch is, this adds additional debt, and if you cannot pay it back within 15 years, you will have to pay income tax on it.
Check for First-Time Homebuyers Programs
Some cities offer first-time buyer programs, which are well worth checking out. Such programs can sometimes be found in cities looking to redevelop a struggling area, or in places where it’s more expensive to buy property.
These programs help first-time buyers by providing a chunk of their down payment as an interest-free loan. The criteria are usually quite strict, but several cities have offered as much as $20,000 to new buyers.
With careful planning and some small sacrifices, you can save up enough for a decent down payment. If penny pinching alone isn’t enough, consider the various schemes and savings plans available. Always seek advice from a financial advisor if you’re not sure how best to save safely!
This article is intended for informational and orientation purposes only and should not be deemed as legal, financial or investment advice or solicitation of any kind. Before purchasing real estate or insurance, always consult with a licensed attorney, financial advisor, insurance agent and real estate broker.