Buying your first home? Your first home purchase is an exciting experience that you will carry with you forever. However, part of that experience involves saving for a down payment. This is one of the less pleasant parts of buying a home, but also one of the most important. If you’re feeling a little stuck in terms of how to start saving up, here are some suggestions to help you get started.
Start by establishing a goal
Saving for a down payment is most effective when you have a specific amount you want to collect. If you don’t know how much you want to save, you’re less likely to be as dedicated to the process since you don’t have a clear end goal in mind. Try to avoid aimlessly adding sprinkles of money into your down payment fund whenever you feel like it. Instead, take some time to think about your savings goal. This will depend on your existing funds, income, and home buying budget. You will also need to consider how much of the home purchase you want to cover with your down payment. For example, buyers looking to save five per cent will not need to save as much as buyers hoping to cover 20 per cent. All of these factors will help you decide how much you need to save for your home buying plans.
Create a dedicated savings fund
Once you know how much you want to save, you need to know where you’re going to put your savings. It’s usually best to have a dedicated savings fund separate from the rest of your money. This ensures you aren’t spending money you mean to save, and it also helps you keep track of how much you have contributed. You can set up an account with your bank, then decide how often you plan to add money to it, and how much. Try to be consistent with your contributions so you can save money at a steady pace. If you struggle to stay on top of your banking, it might be worth setting up auto deposits so you never miss an installment. In terms of deciding how much you should be adding at a time, it’s important to ensure your down payment savings aren’t taking away from your existing financial obligations. Your current debts and payments are more important, so don’t sacrifice those bills just to save faster. Only contribute what you can afford, and take your time if necessary.
Consider where you can cut back
Saving for a big purchase often means making some sacrifices. When you’re saving up for a home, it likely requires you to prioritize your spending a bit more. This doesn’t mean you have to stop buying morning coffees, or start doing your laundry in the middle of the night to lower your electricity bill. We’re talking about other significant expenses you have that you can reduce, cut, or push back. For example, now might not be the best time to buy a new car if it’s not a necessity. You may also want to reconsider vacation plans, or avoid getting a new credit card if it’s going to maximize your spending. Major costs such as these can make a huge difference while saving for a down payment. Cutting them out will give you a big financial boost.
Look into government programs
The Canadian government has some programs that are designed to help new home buyers enter the market. There are two programs specifically targeted at first-time buyers. The first is the First-Time Home Buyer Incentive. As a shared equity mortgage with the federal government, this program covers five to 10 per cent of the purchase price of a property, depending on whether the home is a resale or new build. This can help buyers reduce the amount they need to save for their down payment, and also lower their monthly mortgage costs. The second program is the First Home Savings Account, or FHSA. This is a new release from the government that permits new buyers to save up to $40,000 in a tax-free savings account, to be used toward a home purchase. The tax exemption helps buyers save more money, more quickly. This account is not yet available with some major banking institutions, so if it’s something you’re interested in, be sure to speak to your bank first!
Keep that vision in your mind!
Finally, one of the most helpful things you can do to save for a down payment is remind yourself why you’re going through such a lengthy process. It’s easy to feel overwhelmed and frustrated when trying to save for a home. Try to keep that vision of homeownership fresh in your mind as a way to motivate yourself to keep going! Make a list of all the reasons you want to buy a home, and the advantages it will offer you in the future. Think about your goals in the housing market, and how saving for this down payment brings you one step closer to achieving them. Do whatever you can to ensure you don’t lose momentum.
Down payments are a big expense. Saving for one is one of the largest hurdles to clear during the home buying process. However, the above suggestions can make the experience a little bit easier. You can also contact a mortgage broker as you work towards your goal! Using a broker will ensure your down payment is suitable for your buying budget and mortgage product.
If you have any questions about your mortgage, get in touch with me!