Tips to Help Save a Down Payment to Buy a Home...

Lately, it seems like every time I get together with friends the topic of buying a home comes up. This makes sense since a majority of my friends are either engaged, newlyweds, or new parents…all major lifestyle changes. Almost every conversation someone says

“I can’t afford the down payment of purchasing a home.”

It makes me wonder, how many people are deterred because they honestly don’t believe they can afford the down payment? A common misconception seems to be the belief that one can only buy a home if they have 20% of the purchase prices which just isn’t the case.

Traditionally, home buyers need a down payment between 10 percent and 20 percent of the purchase price. However, backed by Canadian Housing and Mortgage Corporation mortgage insurance, buyers can purchase a home with as little as a 5% down payment - that's only $10,000 on a $200,000 condo.

These days, it’s rare to get a mortgage without contributing some of your own cash.  Regardless of the percentage that one is considering putting down here are some tips to save up for the down payment.

1. Decide How Much House You Can Afford
The first step is to set your savings goal. Research home prices and determine how much you can afford. Calculators can be found on most bank websites and on the CMHC site at http://cmhc.ca/

2. Set Up a Savings Plan
You’ll also need to create a savings plan and set a deadline for reaching your goal. One method is to find the difference between your current housing costs and your projected monthly mortgage payment, and put that much away each month.

This system has the advantage of allowing you to decide if you really earn enough to afford the home you want.

Open a separate savings account for your down payment to minimize the temptation to tap the money for other needs. Also setting up automatic transfers to your new account will lessen the chance you’ll spend the money elsewhere.

3. Pare Back Expenses and Raise Cash
Review your spending habits and determine where you can find extra cash. If you’re determined to buy a house as soon as possible, try living like a tightwad. Start by putting away the credit cards. Then cut out cable TV, switch to a less expensive cell phone plan and reexamine other aspects of your spending until you’ve pared back to just necessities.

Use coupons at the grocery store and stay away from the mall. Hold a garage sale or sell unused items online. There are dozens of books and blogs you can turn to for frugal living advice that can help accelerate your savings.

4. Borrow From Your RSP
Money can be borrowed tax exempt from a retirement savings plan for home purchases, up to $25,000.  Contact me for more details.

5. Find Out if You Qualify for Assistance
If you’re hoping to take advantage of the down market but haven’t got that much saved, you may be able to find help through various programs.

The Region of Waterloo offers assistance for down payments to qualified purchasers...contact me for more details.

Last, but certainly not least, stay focused. Once you really commit to this goal stay with it. The second you are handed the new keys to your home it will all be worth it!