Making small changes in the way you save could make your down payment more achievable than you think.
A down payment might single-handedly take the cake for the biggest lump-sum of money you’ll have to pay in your life. It might be intimidating thinking about how to save such a large amount, but there are small steps you can take that will make achieving this milestone much easier over time.
1. Capitalize on the first-time Home Buyer’s Plan
If you’re a first-time home buyer, The Canadian Home Buyer’s Plan (HBP) allows you to borrow up to $35,000 from your Registered Retirement Savings Plan (RRSP) to use towards a down payment. The only requirement to qualify is being a first-time homebuyer and you must plan to live in the home you’re purchasing.
After borrowing this money, the amount has to be repaid into your RRSP account, but the government gives you 15 years to do so. This means you can maximize your down payment and incrementally pay the funds back over time. Plus, if you’re purchasing a home as a couple, each person is eligible to use the HBP, which means you could borrow up to $70,000 towards your first down payment with no penalties or taxes.
2. Use the First-time Home Buyers Incentive
The First-time Home Buyers Incentive (FTHBI) is another program created to help aspiring home buyers take that next step. The FTHBI lets you borrow between 5% to 10% of your home purchase price from the government, put it towards your down payment and then repay it over 25 years, interest-free. Ultimately this gets you closer to reducing your mortgage size and increasing the equity in your home.
3. Follow a budget
Being particular about where your money is going is a big priority when trying to save for a down payment. At first, creating a monthly budget can seem daunting. But once you take the time to narrow down your fixed and variable expenses, it becomes a lot easier to see where each paycheck is going and how you can cut costs to cushion your savings even more.
4. Cut unnecessary expenses
After you create a budget, the next step to saving more for a down payment is cutting out unnecessary expenses. Lattes, streaming subscriptions, and playing the lottery are popular leisures that create short-term excitement. However, these habits add up and over time, and tend to put a big dent in your ability to save. Try making your coffee at home, limiting yourself to one streaming service subscription, and researching cheaper options for your phone and home internet.
5. Sell your stuff
As we grow older and start to change, so does our taste and style. So, why not consider selling your gently used items that no longer fit your needs? Second-hand thrift shops and internet marketplaces are a great place to list your things to try and put some extra cash in your pocket for your down payment and future mortgage.
6. Start a side hustle
Having multiple streams of income has shown to not only add to your take-home income, but also can play a pivotal role in the road to financial independence. Monetizing a hobby or something you enjoy can also provide extra savings to put towards your down payment. Enjoy pets? Try dog walking. If a work from home gig is more your style, being a virtual assistant or freelance writer are popular side hustle options, too.
7. Start using a high-interest savings account
One of the simplest things you can do to increase your savings is find a bank with a high-interest savings account option. Several banks offer first-time customer promotional rates or even great long-term rates on savings accounts. Try exploring online bank options which offer higher interest savings rates as well as no or low-fee chequing accounts.
8. Pay off your debts
Whether it’s student debt or credit card debt, getting rid of it is a crucial step to being able to save for your down payment. Try to hit more than your minimum payments each month and create a savings plan to keep yourself on track for paying it off. By limiting the amount of interest you’re paying on these debts, you’re maximizing the money that can go into your future home. At the same time, staying on top of your debts and paying off your cards and loans can help improve or keep your credit score in good standing–which is another factor mortgage lenders will look at when it comes to buying a home.
9. Leverage your Tax-Free Savings Account
Contributing to a Tax-Free Savings Account (TFSA)–and the upcoming Tax-Free First Home Savings Account–gives you the benefit of growing your savings without paying tax on the interest you earn. This can help you put that non-taxable savings away while maximizing the value. When looking to purchase a home, savings from your TFSA can be transferred over to your RRSP to also help you capitalize on the Home Buyer’s Plan. If you’re looking for more of a return, you also have the option to talk to a financial advisor about investing your TFSA savings.
10. Be mindful of your spending habits
Beyond budgeting, being aware of where you’re spending your money on a weekly or daily basis is important for long-term financial goals, like a down payment. Impulse purchases, splurge lunches, or lavish gifts can all add-up, even when it does feel like a spur of the moment treat. Take some time each month to look through your spending history to track any spontaneous purchases and create goals for improving this over time.
Small changes in your spending can make big impacts to your savings
Making small changes in the way you save could make your down payment more achievable than you think. And, once you’re ready to take the leap, feel free to connect with one of Pine’s mortgage advisors for any questions you might have about your mortgage and starting your journey to home ownership.