Deciding you’re ready for home ownership is just phase one – then you need to get your financial ducks in a row to actually afford to purchase a home. The typical down payment on a conventional mortgage is 20% of the purchase price of the home. Mortgage insurers like CMHC, Genworth, and Canada Guarantee will provide mortgage insurance to allow you to buy a home with a down payment of as little as 5%. No matter the percentage, it’s a big chunk of money that will take a lot of sacrifice and financial diligence to achieve.
Make It a Priority
To avoid feeling like you’re going without or like you’re missing on opportunities, keep the vision of your very own home at the top of your mind. Every time you think about going out for dinner instead of cooking at home, stopping for a morning coffee at an expensive coffee shop instead of brewing a pot at home, or upgrading to a new phone instead of keeping an old but functioning model…close your eyes and think of your new home. You’ll find it a lot easier to sock the money away instead of wasting it on things that only provide temporary satisfaction.
Pay Off Credit Card Debt
Consumer debt could stop you from qualifying for a mortgage, plus you’re just throwing money away toward interest payments. It’s no use trying to save money if you’re paying high-interest rates on debt that you’ve already racked up. Pay off your highest interest debt first, and then work your way down. Take the money you would have spent on the minimum payment for that card, and use it to pay off the next high-interest debt. Continue until you have reduced your consumer debt to a reasonable amount or even eliminated it altogether.
Share A Car
If you and your partner each own a car, you may want to consider selling one off. For one, you’ll make a tidy sum that can be applied toward a down payment. You will also halve (or better) your monthly expenses for car payments, gas, maintenance, insurance, and parking. Use the opportunity to start walking or biking to work, or carpool with a coworker.
Tax Free Savings Account
You can save all your down payment funds in a tax free savings account. As the name of the account implies, you do not need to pay income tax on these funds, and you are able to grow your savings tax free.
Stash Found Money
If you get a raise, bonus, extra large sales commission, or another form of extra money, place it in a TFSA specifically for the down payment. Learn to work with your regular salary instead of finding a way to spend these bonuses.
First Time Home Buyer
First Time Home Buyers can withdraw as much as $25,000 from an RRSP ($50,000 per couple) to use toward the purchase of a first home. If you don’t already have money in an RRSP, this is a great incentive to start saving. Be aware that you need to repay the money back to the RRSP within 15 years, otherwise you will have to pay income tax on the amount.
For more strategies on saving for a down payment, talk to your Mortgage Advisor to schedule a consultation. With hard work, dedication, and a savings plan in place, it’s only a matter of time before you cross the threshold of your very first home. Contact the Mortgage Advisors to find out more!