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How to Buy A House: Saving for the Down Payment

by:
Alan McQuarrie

An American army general, Creighton Abrams once said, “When eating an elephant, take one bite at a time.” When you are just starting out, saving up for that first time home buyer down payment can feel like eating an elephant.

In this week’s blog we’re giving our top tips that will help you save up for your down payment.

According to the Canadian Real Estate Association, in February 2017, the average national home price in Canada was $519,521. With a minimum down payment of 5 percent, you’re looking at saving about $26,000—almost $27,000 if you include mortgage insurance.

So how do you save $26,000 when you have student debt, current living expenses, car payments, and an active social life? It’s easy to be overwhelmed by the numbers and lose sight of the goal. But with some hard work, discipline and resolve, you can save $26,000 (and more!) for that first down payment. Here are some strategies to show up at the bank with the down payment in hand. 

1. Set a financial goal.

Break your down payment up into small, realistic, timely goals. For example, find a way to set aside savings of $3,000 or $4,000 from your regular budget every year. Pay yourself first before paying any other expenses. You can start making a plan right now by using the Credit Canada Debt Solutions Budget Calculator.

2. Consolidate gifts & savings.

Use Christmas or weddings or other occasions as an opportunity to add to your savings. Let family and friends know your goal and let them play a part. 

3. Check out the Home Buyers’ Plan.

Consider accessing the Home Buyers’ Plan with the CRA where you can use up to $25,000 of your RRSP savings for qualifying down payments.

4. Look beyond hot markets.

Look for a home outside of the hot mortgage markets (e.g., Toronto and Vancouver). Lower home prices come with lower down payment requirements. 

5. Consider condos/townhomes over houses.

Look for condos or townhouses with lower purchase prices. 

6. Set up a Tax-Free Savings Account.

Use a Tax-Free Savings Account or TFSA to keep your savings out of reach. A TFSA ensures that your savings are not mixed together with your monthly operating expenses. Seeing your TFSA balance balloon will encourage you to keep going. 

7. Use a budget tracker.

Stay focused on your goal by using Credit Canada’s Budget Tracker.

8. Get a side hustle.

Take a part time job or set up a small business in addition to your regular work. In the era of social media, it’s easy to turn a hobby into some extra income—just make sure your extra income gets to your savings.

9. Save tax refunds.

Use any income tax refunds to add to your down payment savings.

10. Stay focused.

Put off consumer goods or car purchases for several years until you reach your goal.  

If you need help saving for a down payment, debt consolidation so you can start saving, or you're not sure what expenses to cut out, call us today at 1.800.267.2272 to set up a free appointment with one of our certified credit counsellors. They can tell you your options and how to achieve your financial goals, like saving for a down payment on a home. You can also check out our free E-Learning course on Buying a Home. And if you're looking for some inspiration, consider reading Sean Cooper’s Burn Your Mortgage. Sean used some of these strategies to save for his down payment. They worked so well he kept going and paid off his house in under four years.  

Saving for your down payment might seem like eating an elephant. But with some planning and hard work, you might be surprised at your success.

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Topics: Housing

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