Since a house is likely the most expensive purchase of your lifetime, a deposit on the house will not be a small amount of money. Most lenders require a minimum of 5% down as a down payment prior to initiating the mortgage loan for the remaining amount. The higher your down payment, the less money you need to mortgage from a lender. Here are four tips on how to save for a down payment on a house.
Don’t do the “sock drawer” saving method
It’s great that you can save thousands of dollars in bills, big or small, in your sock drawer or under the mattress at home. But that money will not help you when you go to put a down payment on a house. All money to be used as a down payment must be verified by your bank. This is to protect lenders from money laundering schemes where illegitimate money is used to purchase legitimate property. Even though your sock drawer money may be as legitimate as it comes, you still need to be able to provide a paper trail in order to be approved for a mortgage.
Heavily invest into RRSPs
There are plenty of tax-free advantages available for first-time home buyers. A mortgage broker will be able to help you discover what your options are depending on how you have saved your money. If you have your money in an RRSP account, you can likely remove the money without an immediate tax consequence if you are in fact a first-time home buyer and you are using the money for a down payment on a house as part of the federal government’s Home Buyers Plan. Speak to a mortgage broker for more information on how to utilize your RRSPs.
May be too late for you, but tell your children or younger siblings to start saving a small amount of money from every pay cheque they receive and before they know it there is enough money for a sizeable down payment available. The key is not to waver on your savings each week. Learn to live without the amount you put away each pay and build your life expenses around your take-home amount post-savings. It is easier to save a large amount of money over time then to have to come up with a large sum when you decide it’s time to buy a house. Curious about how much home you can afford? Try out our handy home mortgage calculator!
Live frugally while saving
If it has always been your dream to own your own house, then do yourself a favour and don’t live lavishly while you are saving. If you are lucky to have somewhere free or inexpensive to live while you are trying to build up the bulk of your down payment, be sure not to put that to waste. Avoid spending your savings and work extra hard at building your accounts up.
Homeownership is a great financial responsibility. Be certain to save for your down payment diligently and once you are ready to explore mortgages, discuss your options with an Ottawa mortgage broker.