The down payment

Down payment for first home | Ingrid Bjel McGaughey | Toronto Mortgage Broker

So you’ve decided you’re ready to buy a home… but what about the down payment? How much will you need? Is there any hope of saving up enough? Finding the funds for a down payment – yes, even in today’s market – may be well within your reach. And it may not take as long as you think!

Set goals and prioritize them.

Make the decision to buy a home by a certain deadline, and write this goal down in a prominent location. Then, get motivated by reading about incredible savers like these people who paid off their mortgage in 5 years, or about buying two homes by 35 like this author.  With focus and discipline, it can be done!

Pay off high interest debt.

The average credit card rate in Canada has an interest rate of about 20%, according to the Financial Post, so that means for every $5,000 you owe, you’re losing about $1,000 each year.

Then, pay yourself first.

On payday, have a specified amount, for example 10% of your pay, automatically deducted from your bank account. Have that deducted amount automatically placed in your designated savings account, so you don’t even have to think about it.

Use your RRSP and TFSA strategically.

You can access up to $25,000 from your RRSP without a tax penalty for purchasing your first home.   A spouse or partner can also use up to $25,000.  Use the income tax money you save to add to your down payment fund.   For more details on this, check out my RRSP strategies post here.

Once you’ve hit $25,000 in your RRSP, consider using a TFSA to continue saving for your down payment fund. Interest or other earnings on money in a TFSA are tax-free, creating income tax savings that you can also add to your down payment fund.

Ask if your parents would be willing to help.

Approximately one-third of first-time buyers get help from their parents when purchasing a home, according to Genworth.

Get rid of your car.

Unless your car is essential to your employment, it may make more sense to use public transportation and car sharing programs instead. Check out this great calculator from CAA to see how much your vehicle is costing you – it could be more than $10,000 per year!

Cut out non-essentials.

Financial author David Bach calls this number your “latte factor”. If you’re buying a coffee and a muffin each workday for $6, this is $30 per week, and $1,500 per year!

Earn more money.

Can you add a part-time job to your schedule, like freelancing or blogging?

Live with your parents.

Even if you pitch in toward expenses (which I’m sure your parents would appreciate), you can still save a ton. A monthly rent payment of $1,500 works out to $18,000 per year, and that doesn’t even account for additional expenses you might have like internet, laundry, and parking. If living with your parents isn’t an option, investigate ways to reduce your rent, either by adding a roommate or finding a cheaper apartment.  Remember, it’s only temporary!

Plan on renting out.

Consider adding a second suite, basement apartment, or roommate to your purchase plans.   These additional funds will help with the affordability of your future home, and enable you to pay your mortgage off faster too.  Make sure you check the requirements for landlords in your area – here’s one terrific guide – to make sure you comply with zoning and code requirements, if applicable.  The income may even count toward your income for mortgage purposes.

Don’t be afraid of CMHC or Genworth.

You might be able to buy with only a 5% down payment (click here for a full run-down on this).  Waiting a few years to avoid the extra insurance premium required for small down payments might mean that your property will cost you more than the premium would have. Talking to a great mortgage planner, and getting a mortgage pre-approval so you can really understand the numbers, can make all the difference on your home ownership journey.

If you want more information about how to prep your down payment, check out my article here.

And please contact me for more information. I am happy to help!

Next up: the options!

Photo credit [c] maxsattana for iStock photo dot com

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