Tips to Help You Save for a Down Payment

Apr 15

Your dream home doesn’t have to be a fantasy. Between the increase in cost of living, high rent prices and an undoubtedly hot real estate market, the idea of purchasing a home may feel like a pipe dream. The reality is that with the right approach, plan and help from the experts, your future home may be more of a reality than you might think.

One factor that home buyers cannot overlook is the down payment. While we do suggest saving as soon as possible, it can be difficult to determine how much to save and how long it will take to reach your goal.

Saving for the down payment on your future home IS possible, with the right plan and approach. Let’s take a closer look at seven of the best ways to save for your down payment in this article.

1. Create a Savings Goal

The first step is to determine exactly how much you need to save for your down payment. Your savings goal should take into consideration the purchase price of your home.

For instance:

Homes priced $500,000 or less will require, at the very least, a 5% down payment (although we highly suggest surpassing this amount).
Homes priced $500,000 to $1,000,000 will require a down payment of 5% on the first $500,000, and 10% on the remaining amount.
Homes priced $1,000,000 or more will require a minimum down payment of 20%.

We suggest finding out how much of a mortgage you qualify for first. This can be done by making an appointment with your bank of choice. This will give you a better idea of how much you will need to save for a down payment.

2. Plan a Budget for Success

Now that you know how much money is needed for your down payment, it’s time to plan for success with a realistic budget. This budget should account for your living expenses, debt payments, saving, and of course, entertainment.

While we don’t suggest creating an incredibly strict budget, making a few lifestyle changes and really making your down payment a high priority can set you up for success in the long run.

While planning your budget, you may find it helpful to put pen to paper. First, write down your monthly income and expenses. This includes rent, utilities, groceries, gas, and other essential expenses that are non negotiable. Everything outside of that can be budgeted for accordingly, such as your phone bill, cable and internet, dining out, entertainment, vacations, and even streaming services.

You may want to reach out to these companies to either negotiate a lower bill or suspend your services altogether. Rather than the all-inclusive beach vacation, perhaps you relax a little closer to home. It’s all about taking a closer look at your budget and making subtle changes that will allow you to allocate more funding to your savings account.

3. Make Lifestyle Changes

There are a number of lifestyle changes that you can make to create a little wiggle room in your budget, effectively allowing you to save more money toward a down payment.

Pack a lunch for work, rather than eating out
Clip coupons and start browsing flyers when shopping
Use cards that offer rewards and points programs, especially if it is a cash back rebate, and then pay them off immediately after making a purchase
Try cooking new meals at home, rather than dining out for a fun experience
Exercise at home and outside, rather than a gym
Visit a second hand store or online marketplace for new purchases

While these lifestyle changes may seem insignificant at first, they can make all the difference in the long term.

4. Boost Your Income

This might be the perfect time to look for ways to boost your income. You may want to first open the conversation with your current employer. This approach may result in an increase to your salary, or provide you with more insight into when you could expect a raise.

Another way to boost your income is by finding yourself a side hustle. The side hustle you choose can depend on your education, experience and, of course, interests. If you have experience in design or a creative background, you may want to consider taking on some freelance work as a photographer, graphic designer, writer, or consultant.

For those in the trades, side jobs can also add up. If you have a truck or van, you may be able to earn extra income by helping others move large items or taking a load to the local dump. This is your opportunity to take a closer look at your skills and talents that you have to offer, and really get creative!

5. Pay Off Debt First

Do you have debt? The truth is, many of us have debt in some form or another. The important thing is to tackle your debt and pay as much as it off before it’s time to purchase a home. Not only can certain forms of debt affect your qualification for a mortgage, but it can also make it increasingly difficult to save for a down payment.

We suggest starting with your sources of debt with the highest interest rates. Once those payments are more manageable, you may want to consider the Debt Snowball Method. This approach encourages you to list your sources of debt from lowest to highest. Set your minimum payments for each source as a standard, and then allocate as much money as possible for debt repayment to the lowest one. Once that source of debt has been paid off, add that payment to the next lowest one on the list. Repeat this process until all of your debt has been repaid!

Of course, this is just one approach that you can consider. There are many ways that you can tackle your debt, it all depends on your lifestyle, circumstances and certain deciding factors.

6. Utilize Your RRSP or TFSA

Did you know that your RRSP and TFSA savings accounts can strategically be utilized when saving for a down payment? As a first-time home buyer, you can borrow up to $35,000 CAD from your RRSP, or a collective $70,000 with a spouse if you are both first-time home buyers.

Your TFSA can also help you to save money for a down payment without tax implications, not to mention that you can easily access the funds when you need them. Especially when taking into consideration closing costs and inspection fees during the home buying process.

7. Sell, Sell, Sell!

Do you have items around your house that are no longer used? Whether it’s a crock pot that is still in the box or clothing that never fit you or your style quite right, take some time to purge your belongings and see what can be sold.

Even $25 can make a difference, long-term.

Find Your Dream Home with Lisa Cox Real Estate

Once you have your down payment, it’s time to hit the real estate market and find your future home! Our real estate professionals are here to guide and support you every step of the way. It’s never too early to get started, contact us today! We are here to help guide your SUCCESSful real estate transactions and we are excited to work with you!