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.
10 tips to help you save for a down payment
According to the Canadian Real Estate Association, in February 2017, the average price of a home 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 help you show up at the bank with your down payment in hand.
- 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.
- 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.
- Check out the Home Buyers’ Plan. Consider accessing the Home Buyers’ Plan with the CRA where you can use up to $35,000 of your RRSP savings for qualifying down payments.
- 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.
- Consider condos/townhomes over houses. Condos and townhomes cost significantly less than a house for almost the same amenities (if not more). Not having a lawn and backyard to take care of can also save you big bucks over the years. If you're single or living on your own, a house can simply be too much work for you to maintain on your own.
- 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. You can also set up automatic withdrawals from your primary bank account, so the money get pulled out before you get a chance to spend it. Plus, seeing your TFSA balance balloon will encourage you to keep going.
- Use a budget tracker. Stay focused on your goal by using Credit Canada’s Budget Tracker.
- 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 put into your savings.
- Save tax refunds. If you're lucky enough to get a tax refund, put it towards your down payment. If you have less than $35,000 in your RRSP, consider investing your tax refund into your RRSP, which will help you get a tax refund next year. This creates a vicious cycle of saving and earning more money for your down payment.
- Stay focused. Put off consumer goods or car purchases for several years until you reach your savings goal for your down payment.
Credit Canada can help you save for your down payment
If you need help saving for a down payment, or you're considering 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. We can set you up with a free counselling session with one of our certified Credit Counsellors. They can help you set realistic financial goals (like saving for a down payment) and create a budget that will help you achieve them. 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.
