One of the biggest hurdles to homeownership is saving for a downpayment. While many first-time buyers know they need one, figuring out how to save can feel overwhelming. The good news? With a solid plan and the right approach, you can reach your goal faster than you think.
Here’s how to break it down and make saving for a downpayment work for you.
1. Set a Target and Timeline
Before you start saving, you need to know how much you’ll need.
High-Ratio Insured Mortgage: 5% of purchase price
Conventional Mortgage: 20% of purchase price
Rental Property: 20% of purchase price
An ideal goal for downpayments is typically between 10-20% in order to qualify for better rates and mortgage payment options.
Once you know how much you need, set a timeline based on how much you can reasonably save each month.
Example: If you’re looking to buy a $400,000 home, the minimum downpayment is $20,000. If you want to put down 10%, that’s $40,000.
2. Open a Dedicated Savings Account
Keeping your downpayment savings separate from your everyday accounts helps prevent unintentional spending. Look for a high-interest savings account or a Tax-Free Savings Account (TFSA) to grow your money faster.
3. Automate Your Savings
Set up automatic transfers to your downpayment account every payday. Even $250 per paycheque adds up to $6,000 a year! Increase your contributions when possible, like after a raise, bonus, or tax return.
4. Reduce Expenses and Reallocate Funds
Look at your budget and see where you can cut back or save on interest. Here are a few areas you can look to get started:
The Subscription Audit: Cancel unused streaming services and gym memberships. Saving $50/month adds up to $600/year.
Dining Out Swap: Cutting back on takeout by $30/week saves $1,560/year.
Check Your Debt: If a large chunk of your monthly income is going toward credit card interest, adjusting your repayment strategy can help you save faster. By moving from a 20% interest rate down to a line of credit at 8%, you could save hundreds per year.
Take a look at your monthly spending as a whole, and make changes where it makes sense for you.
5. Leverage RRSPs and the First Home Savings Account (FHSA)
The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP tax-free for a downpayment. The First Home Savings Account (FHSA) lets you contribute up to $8,000 per year (max $40,000) with tax-free withdrawals for your first home.
For example, if you contribute $500/month to your FHSA for five years, you’ll have $30,000 saved, tax-free!
6. Boost Your Income
Finding ways to bring in extra income can fast-track your downpayment savings.
Side Hustles: Freelance, tutoring, pet-sitting, or selling handmade goods.
Sell Unused Assets: Sell assets like an underused or costly vehicle, tools, or even items sitting in storage.
Overtime and Bonuses: Direct work bonuses and tax refunds straight into your savings.
Renting a Room: If possible, renting out a spare room can significantly boost savings.
Example: Earning $200 extra per month means an additional $2,400/year toward your downpayment.
7. Consider Government Incentives
Look into programs that help home buyers, such as:
GST/HST New Housing Rebate: recover part of GST/HST paid for a new or renovated home that is your primary residence.
Home Buyers’ Amount: Claim up to $10,000 for first-time home buyers and persons with disabilities purchasing a home.
Canada Greener Homes Initiative: Financing and grants to create energy-efficient homes.
Stay Consistent and Adjust as Needed
Saving for a downpayment is a long-term goal, but small, consistent steps add up. Regularly review your budget and savings plan, and make adjustments as your income or expenses change.
If you’re working toward homeownership but need guidance, let’s chat! I can help you set a realistic plan and explore all your options to get you into your home sooner.
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