When you buy a house you are going to need to put some money down in addition to the monthly mortgage payment. This amount will vary. In Ontario, you need to have a minimum of 5% down. To avoid mortgage loan insurance you will need 20% down. Either way the bigger the down payment the more competitive your offer. Start saving that down payment in no time with these tips.
You need a place to live while you are saving for a down payment but try and reduce your rent as much as possible. Consider moving in with roommates rather than living alone. Splitting up rent between several people often works out to be cheaper than staying in a one bedroom apartment by yourself. An option for younger adults or millennials may be to delay moving out with parents or moving back in. If your family is willing/able to let you stay this is a great option.
Although it may be tempting to allocate more of your paycheque to a savings account, the less money you are paying in interest the more you will be able to save. Pay off your debts with the highest interest rates first. In addition to saving money on interest, reducing debt will up your chances of qualifying for a mortgage.
This isn’t an option for everyone but if it is, take advantage of it. Try riding your bike, walking or taking public transportation to work. Or if you are a couple saving for a house together try to share one care between both of you. A house is usually a better investment than a car anyway. Cars tend to go down in value while houses go up. So weigh the pros and cons of getting rid of your car. If you do get rid of it, take the amount you were spending on a car payment, insurance and gas and put it into a savings account.
On the note of getting rid of a car, get rid of or reduce any other expenses you can. Get rid of your gym membership if you don’t use it, change your cable or telephone packages, pack a lunch instead of buying it, rent a movie instead of going to the movie theatre. Anything that isn’t a necessity try and eliminate it or find a cheaper alternative. Prioritize saving over everything else.
Along with reducing expenses, make the most out of any extra income you receive. This might include work bonuses, commission, holiday or birthday money. Try and allocate all extra money into a savings account.
Any interest earned in a tax-free savings account is exempt from income tax. This makes it a great way to earn interest and keep it in the bank. In 2016, you can invest up to 5,500 in your account tax-free.
In Canada, the Home Buyers’ Plan allows eligible first-time home buyers to withdraw money from their RRSPs to pay for a house. You are allowed to withdraw up to 25,000 and you have 15 years to repay the money back into your RRSP. For more information visit the Canada Revenue Agency website.
Saving a down payment for a house can be overwhelming. But with a little bit of sacrifice to your daily spending habits and taking advantage of extra income and government programs, you might surprise yourself with how fast you can save enough money. Home ownership is a rewarding experience and a great investment opportunity. If you know anyone who is trying to save up for a house please share this article and these tips with them.