6 Ways to Save for a Down Payment

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Deciding you’re ready for home ownership is just step one on your long journey. Then you need to get your financial situation under control in order to be able to actually afford to purchase a home. The typical down payment on a conventional mortgage is twenty percent of the purchase price of the home. Mortgage insurers like CMHC, Canada Guarantee, and Genworth will provide mortgage insurance to allow you to buy a home with a down payment of as little as five percent. Whether it is five percent or twenty percent, it is still a big chunk of money that will take a lot of sacrifice and financial diligence to save.

1. Make It Your Priority

To avoid feeling like you are depriving yourself or missing on opportunities, keep the idea of one day owning your very own dream home at the top of your mind. Each and every time you think about going out for lunch instead of bringing one from home, stopping for a morning coffee at a Starbucks instead of brewing a pot at home and bringing it in a travel mug, or upgrading to a new phone instead of keeping an older model that is still functional …close your eyes and think of your very own home. You may find it a lot easier to start putting the money towards savings instead of wasting it on things that only provide temporary satisfaction.

2. Pay Off Credit Card Debt

Why throw your money away towards interest payments? Even worse, having consumer debt could stop you from qualifying for a mortgage in the first place. Why risk it? It is not worth it trying to save money if you are paying high-interest rates on debt that you’ve already racked up. Write it all down. Pay off your highest interest debt first and then work your way down the list. Next, take the money you would have spent on the minimum payment for that card and use it to pay off the next high-interest card debt. Continue until you have reduced your consumer debt to a reasonable amount or strive to eliminate it once and for all!

3. Carpool

If you and your partner each own a car, you may want to consider selling one off to lessen the financial strain. First of all, you will make a decent sum that can be applied toward a down payment. You will also reduce your monthly expenses for car payments, gas, maintenance, insurance, and parking by half or better. Use this as a chance to start walking or biking to work, or carpooling with a co-worker.

4. Tax Free Savings Account

Did you know that you can save all your down payment funds in a tax free savings account?First time home buyers can benefit a lot from putting their money toward a down payment in a separate account. As the name of the account implies, you do not need to pay income tax on these funds! Better yet, you are able to grow your savings, tax free in this type of account.

5. Stash Extra Money

If you get a raise, a bonus, a generous gift, an extra large sales commission, or another form of extra money, place it in a tax free savings account specifically for the down payment. Learn to work with your standard salary instead of finding a way to spend these bonuses.

6. First Time Home Buyer

First time home buyers can withdraw as much as $25,000 from an RRSP (that is $50,000 per couple) to use toward the purchase of their first home together. If you do not already have money in an RRSP account, this is a great incentive to start saving. Be conscious that you need to repay the money back to the RRSP within 15 years, or else you will have to pay income tax on the amount.

For more strategies on saving for a down payment, contact me on my website or through my social media pages to schedule a consultation. With hard work, dedication, and a savings plan in place, it is only a matter of time before you step inside your very first home. Contact me to get all of your questions answered!