Are you looking to buy a house in Canada but don’t know where to start? Don’t worry, and you’re not alone. Saving up for a down payment can seem like an impossible task, but with the right tips and strategies, it can be done!
In this blog post, we will discuss some of the best ways to save money and build your savings account to purchase your first home by having a good downpayment.
So read on and get started today to find out how to save for a house in Canada.
What is a minimum down payment?
The down payment is the sum you spend on putting up a house. Your bank will charge the down payment mortgage to cover the purchase price costs.
You will pay the rest of the mortgage amount on the house. The minimum down payment is determined based on the home purchase price. If your mortgage downpayment is below 20%, you must purchase mortgage default insurance known as CMHC (mortgage insurance).
If you are self-employed, you may need a higher down payment. Typically, the minimum amount of money is deposited from your own money.
The more you save for a down payment, the less you pay back to your mortgage lenders and can also lower mortgage payments depending on how you set up with your mortgage lender.
Tell me the difference between RRSP and TFSA?
You can take advantage of two other options when looking to buy as a first-time home buyer: an RRSP ( registered retirement savings plan) or a TFSA (tax-free savings account). You could undoubtedly leverage the homebuyer’s plan.
A first-time homebuyer can use their registered retirement saving plan as part of their downpayment ( up to 35K ); you can withdraw money from the RRSP, but you will need to replace the money within a guideline the Canadian government.
This Home Buyers Plan (HBP) can also include spouses, which means you can withdraw 50K of your registered retirement savings plans as a couple. It’s good to check the government’s websites to check in on this year’s standards, as they may change upon signing up.
As of the 2022 rule, You have to repay the Home buyers’ plan. RRSPs must be replaced within 15 years. Remember this will be above your monthly mortgage payment.
Find out how much you’ll have to save for a Down Payment
The first thing you should do to buy a house down determines how much money to raise. Ideally, the property should save 20 % of the overall cost if possible. If you pay more down, you will likely get mortgage approval. You will also be offered an easier-to-use bank account with lower monthly payments.
By investing in a more significant downpayment, your mortgage will save you money on CMHC mortgages. CMHC insurance covers borrowers that are paying under 20 percent of their loan.
The best way to determine how much you need to save is by using a mortgage calculator. This will help give you an idea of your monthly expenses and the down payment required.
Please look at your monthly expenses first if you are only bringing home, for example, $4000.00 after taxes, benefits, etc.
Check-in With Budget
Can you afford a $2000 mortgage payment without a hiccup in your life? What if interest rates go up when you renew? What if you get divorced, have a baby, etc.? What if you lose your job?
The old rule of thumb used to be 30% of your income, which would be $1200.00 in this particular case. But I don’t think this is probably realistic in this day and age in many cities across Canada.
Today, there is a “STRESS TEST,” which can help determine the amount of money you can borrow towards a home.
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How is your Credit History?
The better your credit history, the better odds you will have success in obtaining a mortgage without the help of a Co-signer. If you have a poor credit history, you may want to improve this by talking to your bank or a personal finance expert.
Poor Credit history will mean higher interest rates until you improve your credit score. If you default on loans, credit cards, etc., you will lower your score.
A larger Downpayment May be needed than Imagined.
Once you have an idea of your ideal home purchase price and your comfort level, You will now have to figure out how to save for a downpayment for your home.
Costs will vary on a newly constructed home or an existing home.
Plus, don’t forget besides the down payment, you will want to consider the following of extras you may want or need into your lump sum of the total cost of what you want to do as part of your home buyers plan to make sure its a qualifying home for the mortgage loan lender. You can estimate about 3% for closing costs.
- closing costs
- land transfer taxes
- title insurance,
- legal fees
- building inspector
Determine your Timeframe
Then it would be best if you established a money savings plan. It depends on how much time you put into savings each month. It must also include the dates that will determine the price for buying a property for sale.
Is there a 2-year plan for buying a $400k house in Montreal? To do so, it would take 20k to save on your current budget. The savings amount is $500 per month.
Alternatively, you have a choice between buying a cheaper house or simply prolonging the life cycle to 3 years and a half years. Perhaps you are already paying rent and have a tight budget.
You may have to consider where you want to purchase and look at a property just outside of where you desire to move. Maybe find a cheaper building to rent, or find roommates etc.
There are only two ways to change your situation when having a goal to GET more money. One is to spend less or earn more, and of course, to do both.
You might have to get a second job or see if you can pick up overtime at work. Do some cutting of your entertainment budget, or take a brown bag lunch to work and skip the latte coffee.
Increase your salary
Take your job seriously. List your achievements and why you think you deserve a promotion; look for an opportunity for advancement. Contact people in the same field to see if you can find a better option out there to help you meet your goal.
Every job and career is different, but it is essential to know how to advance or make more money. Maybe you can pick up some overtime take a course to advance your career.
Reduce Your Consumer Debt
Take a look at all your debt, especially the high-interest debt! Do you have a balance on your high-rate credit card interest? It would be best to focus on getting rid of debt, costing you a lot of money per month.
Take a look at all your statements and see what is costing you a lot per month that money could put towards a house downpayment if the debt didn’t exist.
Obviously, extra student loan debt will get in the way of your downpayment or car payments, but don’t focus there – Focus on the debt with any high-interest rate. You will need to stop consuming new debt.
Create a Budget and Stick to It
Creating a budget is the best way to see where all your money goes. You may be surprised how much you are spending on things that aren’t necessary.
Take a look at your rent or mortgage, car payments, student loan payments and other bills. Are there areas where you can cut back so you have more money each month to save for a downpayment?
If it means cancelling Netflix for a few months, that’s what you need to do! Try out an app like Mint or Snowball ( $3 app) to keep track of where every penny goes – this will help make sticking to your budget easier.
Start with small goals and work your way up.
It’s easy to get discouraged if your goal is to save for a downpayment on the house.
Start with small goals, like saving $150 per month. Once you have reached that goal, increase it to $300 and $500. This will help keep you motivated and on track!
Save Your Tax Refunds
One easy way to save for a downpayment is to put all or part of your tax refund into savings. If you are expecting a refund this year, consider setting up an automatic deposit into your savings account, so the money goes straight there without thinking about it!
Use windfalls wisely
Don’t spend it if you receive any extra money – whether it’s from a bonus at work, an inheritance, or even winning the lottery!
Put that money straight into your savings account and watch it grow. This will help you reach your downpayment goal even quicker!
Ideas to Reduce your expenses to Gain Extra Money
Another way to save money for your home down payment is by spending less money on the basics. For this, you should examine in more detail the major spending categories. We’ll go over some significant categories with some ideas on accomplishing each one.
Can you find a cheaper place to live? Perhaps moving to a lower rental unit may help you save money every month. Could it work with an addition of a roommate or renting out on weekends for a side gig of Air B n B?
I know sometimes a one-bedroom is, for example, $1000 per month, but a Two bedroom is $1200.00 per month. Perhaps you consider moving back in with your parents to help save money each month.
Look at your balances on Paypal credit cards, and see if you need Spotify, subtract some tv packages like Stack TV on amazon prime, or cancel Disney Plus. What can you do in this department? If you cancel your cable for streaming, can you subscribe to NetFlix for one month and then do a month of Crave, so you don’t have multiple additions.
Don’t forget about phone apps you have paid for, as some of them may have yearly fees you have forgotten about.
We all have some frivolous stuff in our lives; maybe it is having a few beers after work or spending money on Gambling every paycheck. Perhaps you have an online shopping issue. It’s all a coping mechanism; it might be Gaming and spending money on Candy Crush lives etc.
Take a hard look at what you are spending money on yourself to be eliminated or better managed. Not having any fun is not living life either, but sometimes when you look at the big picture of it all, you can find a few ways to trim the fat, so you can start to save money for the down payment. So perhaps make a budget for your fun.
To easily save for a house will mean to eat out a lot less. It’s an easy way to save $10,000 per year! Say What? It only takes $28 per day to spend $10K? So if you are eating out lunch daily at $15 a day, $ 5-morning coffee, and doing take-out three times a week at $30 per meal, that could be darn close to $10k you could put on as a down payment.
I once calculated back in 2011 I was spending almost $1000 by eating out for a family of 4 at $80 per takeout x 10 a month or three times a week.
If you are on the road and stuck in hotels, perhaps look at a Mini convection oven and inversion plate.
If Covid taught us anything, it should expand our need to learn how to cook! If you can cook off the box of a KD dinner, you can follow any instructions online to find whatever you want to create.
Start with your morning coffee and dinner, and make extra dinner to take for lunch the next day.
Do you own a car? If you look at ways to save on insurance, can you use public transportation and eliminate paying for parking at work.
Check out the price difference between taxis and uber; you may be surprised to see uber costs more during prime time than taxis.
Maybe consider a downgrade on your vehicle. Sell your car privately to pay off your loan and purchase a lesser car that doesn’t require payments. This may not work for everyone because what works for one person won’t work for someone else.
Embrace the side hustle
Another way to save money for a down payment on a house is to embrace the side hustle. A side hustle can be flipping second-hand items, dog walking, doing Task Rabbit, or freelance writing. The more money you can bring in each month, the more quickly you’ll be able to save up for your dream home. Income towards savings each month – that may help you make some gains on saving money towards the purchase price of your house.
Pay yourself first with automatic savings.
Okay, you cut costs and raised your wages. Now you can continue with this work and pay yourself. Pay yourself first – Make saving your priority rather than their only priority.
You’d like to pay up to $390k on a $500,000 condo in Toronto. $33.9K can be huge for everyone at the same time!
If you pay yourself first and set up automatic deposits on every paycheque, you will have less temptation to spend it. Auto set up those RRSP or Tax-free saving accounts.
Store your money using the proper Option for you
If you want to be assured your fund’s money never be wasted, you need to think about the location you will put this money in. You have got to put savings first. For supercharged funds, you have money options between High-Income Saving Account and Gic.
A good interest savings account gives you an interest rate of around 3% a year, which is enough to break even with rising inflation.
GICs (GICs or Guaranteed Income Certificates) allow you to save money on specific dates and with even better rates ranging from as low as 6%. You can pick a GIC with no penalties for early withdrawal, so you are always in control of your money.
If saving is crucial to you, try out both these options and see which one works better for you!
So there you have it – some easy ways that anyone can save money to put towards their down payment on a house in Canada. Just remember to be creative and think outside the box, and before you know it, you’ll be well on your way to homeownership!