Welcome to 2020 everyone! A new year means new goals and that just may mean purchasing your dream home. If that's the case, it can be hard to save for a down payment (especially since it was just Christmas and you might have racked up some debt from those dinners and presents). But check out these easy ways to save for that down payment and achieve one of your goals in this new decade!
Step 1: Figure out how much you'll need to save
This would be a good time to sit down with a mortgage lender to figure out exactly how much you could qualify for.
You might be able to get mortgage financing for as low as 5% down; however, with anything under 20% down, you will need to add on mortgage insurance! That can add onto your monthly mortgage payments quite a bit.
Step 2: Determine your timeframe
Sit down and really think about when you want to buy this house. Then, figure out how much you will need to save monthly in order to maintain that timeframe. If this is unobtainable, you can always move the timeframe further out. Be reasonable with yourself!
Step 3: Save, save, save
Here are some ways to help make sure you have enough money when it's time to get that mortgage:
- Transfer a fixed amount into a savings account every month. Figure out how and when this makes sense. For example, when you get your pay, you should automatically have it setup so that a certain amount goes into this savings account. Commit to never using these savings for any purpose other than your down payment.
- Skip those vacations for the timebeing.
- Lower your expenses. It is a great idea to make a budget and see how much you've been spending and on what. This is an easy way to see what you could reduce or eliminate. Spending $100 on going out for drinks after work every week? Reduce that to maybe once every other month (or plan to have friends over to your place instead) and put the money you would have been spending into that savings account we mentioned earlier.
- Reduce your high interest rate debt. Pay off your high interest rate credit cards first. When you've paid the entire balance, close the card and move onto the next. If you cannot do that, at least transfer the credit card balances to the card with the lowest interest rate.
- Borrow from your retirement plan. Have an RRSP that you forgot about? Maybe your work automatically puts funds into it without you even seeing the money. As a first-time home buyer, you can borrow up to $35,000 from your RRSP for a down payment, tax-free.
- Save more from work. I know this sounds hard, but if you get a raise at work for example, take that extra money and put it into your savings account. Bonuses, extra sales commissions, and tax refunds also go a long way in achieving your down payment goals.
Step 4: Build Flexibility Into the Plan
There can always be demands that come up throughout the timeframe in which you're selling. No matter what, always make sure you have an emergency fund in the case of unexpected expenses such as car repairs, replacement of a car, uncovered medical expenses, or even a temporary loss of a job.
Buying a home can be a long and stressful process. It can be scary to see how much money you are dedicating so much time to, but it will be worth it with the excitement and freedom that homeownership brings.
So finally we get to the last step, buy your home! Use these savings tips to ensure you keep your credit score high and are prepared for an unexpected financial terbulance that homeownership can also bring!