Seven Great Tips to Help You Save for a Down Payment
Saving for a down payment is one of the biggest challenges of home ownership. When you’re already paying rent and bills, it can seem impossible to save up such a large sum of money. But with the right strategy and a little dedication, you’ll be ready to start shopping for your dream home in no time. Here are our seven best tips to help you save for a down payment so you can leave renting behind.
Start with A Plan to Save for a Down Payment
As with any important goal, saving for a down payment will be more attainable if you start with a plan. Sit down and make a detailed budget that includes your total income and all your household and personal expenses. Once you have a clear picture of your financial situation, you can make adjustments to help you reach your savings goal.
Know Your Limits
You may have a long list of wants and must-haves for your new home. But in reality, you might not be able to afford everything on your wish list. Meeting with a mortgage broker to discuss your homebuying power will let you know how much mortgage you qualify for. This will ensure you have realistic expectations and don’t waste your time looking at houses that are out of your price range.
How Much Down Payment Will You Need?
Once you’ve established your new home budget, you’ll have to decide how much you want to put towards your down payment. The more you put down, the lower your mortgage payments will be, but it’s best to set a realistic goal.
Here are the guidelines that help determine how much a down payment will be for real estate in Ontario:
- If the home you are buying costs $500,000 or less, your down payment must be at least 5% of the purchase price.
- For homes over $500,000 but less than $1 million, the minimum down payment is 5% of the first $500,000 ($25,000), + 10% of the remaining value of the purchase price.
- And for homes that cost $1 million or more you must put down a minimum of 20% of the purchase price.
Cut Expenses
The first step to increasing your saving power is to eliminate unnecessary expenses. You may have to go without some luxuries for a while, but if buying a home is your priority it will be worth it. Easy changes like making your own coffee and avoiding eating out are a great start, but there are a lot of other areas where you can cut costs. Consider cutting cable, cancelling gym memberships, not buying new clothes, using the library, and joining your local buy-nothing group.
Eliminate High Interest Debt
Debt is the biggest obstacle when it comes to saving for a down payment. Making monthly payments on credit cards, student loans and car loans doesn’t leave much left to put towards savings. Eliminating large debt payments is the quickest way to create more money to put into savings. Reducing debt is also important when it comes to applying for a mortgage. The higher your debt, the less money you will be able to borrow.
Focus your efforts on paying off your highest interest debt first. When that debt is eliminated, move on to your next highest interest payment, and so on. As you pay off each sum, you’ll free up more money to put towards the next debt which will speed up the process. When your debts are paid off, all that money can then go towards saving for your down payment.
Add Extra Income to Save for A Down Payment
If you’ve cut extra expenses and eliminated debt but are still looking for ways to save more for your down payment, it’s time to look at adding extra income. Whether you pick up a part-time job or start a side hustle from your home there are plenty of ways to bring in a little more money. With today’s gig economy there are a lot of options for casual work as a driver or delivery person. There’s also a whole world of online opportunities such as virtual assistant, freelance writer and social media manager to name a few.
Start Making Payments Before You Get A Mortgage
A great way to save for your down payment and get used to living with monthly mortgage payments is to put the amount you would spend on your mortgage each month into your down payment savings account.
Don’t let the thought of saving for a down payment deter you from your dream of homeownership. With these tips to help you get started, saving for a down payment will be easier than you think. When you’re ready, one of our agents can help guide you through the process of searching for a new home.