Suppose you are looking to purchase a home soon and need to save up for a downpayment. Here are a few helpful ways to get started and set some goals to make it happen.
How Much Will You Need For A Down Payment?
The short answer is it depends.
There is a minimum contribution of a 5% down payment to purchase a home in Canada if it’s your primary residence.
The exact amount will depend on the listing price. Be aware that this will be one of many upfront home-purchasing expenses. There is also approximately 1.5% more needed to cover closing costs and legal fees.
The higher the cost of the home, the more of a down payment you will need. For example, on an $800,000 home, you will need 6.5% of the purchase price or $52,000 down. If you are looking for a home over $1,000,000, a minimum of 20% down is required, or $200,000.
Purchasing a home that is $999,999 vs. a $1,000,000 home, the difference is significant due to the down payment required by lenders. Speak to an experienced local REALTOR® to find out more.
Ways to Save For A Down Payment
Saving for a down payment might seem incredibly hard, but following these steps could alleviate some of the mystery.
Establish a Savings Goal
Before you start saving, it is essential to know what price range of home you are shopping for and the down payment that is required to do so. Knowing when you want to buy and the percentage you plan to put down upfront will significantly change the plan of putting money away. After figuring out these things, you can decide how much you will need to put away each month to reach your goal by a specific date.
Cut Back on Expenses
The easiest way to start saving is to look at your day-to-day expenses—and see what you can cut out and still live comfortably. Review your last three months of spending. You will often be surprised by how much money you have spent on unnecessary things, like eating out, coffee and subscriptions, to name a few. A coffee here or there might not seem like a big deal, but small purchases add up quickly.
Automate Your Savings
Once you have decided on a set amount of money to save every month, set up a recurring transfer of that amount from your checking account to a high-interest savings account every time you get paid. The savings account should be left alone until needed, so make sure you can live off the amount left per paycheck.
Plan to Save Your Windfalls
Plan to save any extra money you get throughout the year, whether a work bonus or income tax return. Instead of spending the extra cash frivolously, add it to your savings account immediately! It will help boost your savings account to reach that down payment goal faster.
Borrow from Your RRSP
If you have RRSPs, the federal government will let you borrow money from it if you are a first-time home buyer with no penalties when you withdraw. However, you must pay the amount borrowed back within 15 years, and the maximum withdrawal is up to $35,000.
This short list includes a few hints and tricks to get you started saving for a house. There are other ways to acquire extra money, such as an extra side hustle or if you are lucky enough to receive a monetary gift from a close family member.