How to Save For a Downpayment for a Mortgage-31 Tips
Looking to buy your first home but the process of saving for a downpayment seems like an overwhelming process? These simple tips can ease your mind and turn this daunting process into an easy and attainable goal.
Distractions are inevitable; splurging on brand names, eating out at fancy restaurants or buying that new phone you’ve been wanting for ages may seem tempting, however resisting the urge is essential. Self discipline is crucial when it comes to saving for a downpayment. Sacrificing the urge to indulge in impulsive purchases will pay off in the long run. You need to identify what is most important to you, and keep that goal in mind when the temptation to spend your money elsewhere arises, because it will, and you need to be prepared to turn away when it does.
2. Automatic Savings Plan
An automatic savings plan is a convenient way to ensure you are not overspending. Request direct deposit from your employer and set up an automatic deduction from your paycheck so that a portion of your paycheck will be deposited directly into your savings account. This strategy can help with budgeting and can help to gradually increase your savings. Setting aside a fixed amount into your savings can help you to monitor your spending habits and create more awareness surrounding unnecessary purchases.
3. Snowball Method
Drowning in debt is no rare occurrence; whether it is student loans, auto loans or credit card balances, debt is killing your chances of effectively saving for a downpayment. There are many strategies to paying off your debts; the snowball method will be effective for you if the weight of your debts is
overwhelming, since it focuses on paying off smaller debts first and eventually working your way up to paying off your larger debts. Getting rid of smaller debts creates a bit of relief as it not only creates more motivation to pay off your larger debts but you can now focus all your attention on those larger debts and reduce interest rates. This will also help to increase your credit score, this is beneficial when applying for a mortgage. The downfalls of the snowball method include possibly owing extra money in interest, since it may require a significant amount of time before you work your way up to paying off your larger debts.
4. Avalanche Method
The avalanche method is another way to pay off debt. It involves paying off your debt that has the highest interest rate first, then focusing on the lower interest rates. The avalanche method may save you more money in the long run, however it requires self- discipline; if you miss a payment, planning to pay off all your debt will take longer. The advantage of the avalanche method is that you will save money on interest rates.
5. Downsize your car
This goes back to priorities; what is more important to you? Shift your perspective to keep your focus on the goal of saving for your home. Sell your car
and downsize to something more manageable. A cheaper car that is more affordable in regards to gas and insurance can help you out considerably when it comes to saving for your down payment. If you live with a spouse or roommate, get rid of one car and consider sharing. Carpool with co-workers to work, take the train or walk if distance isn’t an issue.
6. Reduce monthly expenses
Becoming aware of your monthly expenses is key to ensure your savings are growing and your spending is reduced. It can be the small monthly costs that
may seem harmless, however added all together can put a strain on your bank account. Get rid of unused monthly subscriptions, consider getting rid of your netflix account and sharing with a friend. How expensive is your gym membership? Maybe consider switching to a more affordable place. If you order in every night and eat out every weekend, consider making a change. Self sacrifice comes into play here; try to switch short term pleasure for the accomplishment of moving into your home. So yes, skipping that morning Starbucks coffee will be better for you in the long run.
7. Find Cheaper Options
Saving money is all about being resourceful and if you can bring your creative side out, all the better. Thinking outside of the box will help you to switch out the things that are costing you extra and replace them for things that are more affordable. Shopping can put a huge dent in your credit card; try thrift stores. If you buy a lot of books, why not try the library?
8. First Place Program
This program helps first time home buyers who need extra assistance with saving for a downpayment. This program develops vacant school building sites into town homes. This program allows for a five year deferral on land payments. VIsit https://www.edmonton.ca/programs_services/housing/first-place for more details and qualifications.
This program allows first time home buyers to borrow up to thirty thousand from their RRSPs to put toward saving for their down payment. There are some qualifications that must be met: a written agreement of purchase must be provided when applying for this program, RRSP funds need to be available ninety days before purchasing your home, withdrawals under this program are tax free but must be fully paid back within fifteen years and lastly the qualifying house must be your primary place of residence.Visit https://www.nesto.ca/home-buying/use-the-home-buyers-plan-to-buy-your-home- sooner for more information.
Canada Mortgage and Housing Corporation will provide you with an interest free down payment loan. The loan must be paid back within twenty five years, down payments amounts must include 5% for homes and 10% for new builds. A minimum of 5% down payment must be provided. Eligible applicants’ income can not exceed 120 000.
11. Use a Tax Free Savings Account
A tax free savings account can be useful when it comes to saving money. This account allows you to grow your savings without being taxed; you will not
have to pay income tax on your hard earned money and that extra cash can go towards your down payment.
12. Multiple sources of income
If the pandemic has taught us anything, it’s that nothing is set in stone. The more sources of income you have, the better. Most people are busy with full time jobs but consider a side hustle that can result in passive income. Maybe you are interested in starting an online business or selling products on Amazon, keep in mind these options require investments in order to make passive income and will only be ideal for people who are saving for their down payment in the future without a strict deadline. If you are looking to grow your savings in a timely manner, consider a temporary income booster; a second job until you can afford that downpayment. Consider tutoring or childcare to boost your savings.
13. Use cash for daily transactions
Using cash instead of cards can create more awareness on daily spending and may even help you to avoid overspending and further damaging your credit debt. This will allow you to not spend what you do not have, and by only withdrawing a certain amount per day, it will allow you to budget accordingly.
14. Create Deadlines
Creating deadlines can be important for establishing direction and will help you stick to your goal more efficiently. Make a plan bi-weekly, monthly or quarterly to have a certain amount saved. Write these deadlines down, tell relatives and friends to hold yourself accountable.
15. Borrow from a Relative
If saving for a downpayment is too overwhelming for first time homebuyers it is common for parents or relatives to gift the remaining amount in order for it to become more affordable.
16. Move to a Modest Rental
Moving to a modest rental is temporary and will allow for you to grow your savings quicker; you can now put that extra income towards your down payment. This idea may not seem appealing, however this temporary sacrifice will lighten up your monthly costs so that you can get into your dream home quicker.
There are many steps to creating an effective budget. Firstly, become aware of your income and monthly expenses. The easiest way to waste money is by being ignorant of where your money goes each month and failing to keep track of your spending habits. Secondly, take a deeper dive into investigating what you spend on non essential items and review what can be cut out. Thirdly, set a goal of what you would prefer to be saving each month, week or year. Ensure this goal is realistic, as an unrealistic goal can deter you from following through with your goal. Next, make sure you are monitoring your budget and adjust it accordingly. Lastly, take action. It is easy enough to get a slight boost of accomplishment from creating this plan and following through with it for a few days or weeks, however sticking through with it to accomplish your goal takes discipline.
18. Save your money in TFSA
A TFSA It is a tax free savings account, these accounts are ideal for saving money since none of your income gets taxed consequently growing your savings
in a more timely manner. These accounts allow you to forward unused contributions for years up to the limit. You can hold stocks, bonds, cash and mutual funds in a TFSA.
19. RRSP Home Buyers Plan
There are many benefits to having an RRSP; most people use it to save for retirement or save on income tax, however with the home buyers plan it can also
be used to save for your first home. The home buyers plan allows you to borrow up to 35 000 from your RRSP, you will just need to be able to pay back the money within fifteen years.
20. Keep an emergency fund
Emergency’s can sometimes be inevitable and you never know when you will need extra cash to get you out of a situation. Creating an emergency fund can help you to avoid withdrawing from your savings. This is a safety net and will allow you a cushion so you will not have to immediately go into your savings in an emergency situation.
21. Ask for a Raise
Most people are not earning what they are deserving of. If you are in the position to do so, ask for a raise and use the extra income to put into savings for your down payment.
22. Compete with yourself
This will keep you active and motivated in your goal of saving for your down payment. Keep track of your savings and how much you save in a week or month and in the next month, add an additional amount and keep working your way up.
Open a brokerage account in order to grow your savings. This way you can invest in stocks or mutual funds to have the potential to earn more than what you
originally put in. This involves a bit of risk as the stock market can be volatile, however can be rewarding if you do enough research in the stocks that would be most beneficial to invest in.
24. Allow Flexibility
Allow flexibility in the sense that you are being realistic about your goals, if you are too strict it may distinguish your drive and motivation, by being unable to meet unrealistic expectations. Make a realistic budget and goal to stick to it.
25. Save your loose change
Saving change is a simple and easy task that can make a substantial difference. The small things add up and as it can be easily overlooked as not many people use this strategy however if you save instead of forgetting about your change it can have an impact on your savings.
26. Map out large purchases
Planning will help you to avoid impulse purchases and if you need to invest in a large purchase ensure it is a part of your budget and adjust your budget
accordingly. Do research on the item you require, are there cheaper alternatives? Is it really necessary or can you hold off until after you have saved for your down payment.
27. Rent Out a Parking space
If you live in a busy area such as downtown, renting out a parking space would be a strategic way to make passive income.
28. Understand Taxes
Nobody enjoys doing their taxes, however if you fully understand your taxes there are ways you can get reimbursed and save on income tax. Income tax is unavoidable if you live and earn an income in Canada. The Canadian tax law gives us the privilege to reduce the taxes you owe if you are aware of the current rules. Stay informed and up to date on your current tax situation as it can benefit you and allow you to get reimbursed for that extra cash for your down payment.
30. Rent out a spare room
This is an easy way to make some extra money with minimal effort. You can decide to get a roommate or rent out a room on airbnb. Airbnb will be the superior alternative if you do not want the commitment of having a full time roommate. You will also be able to adjust it to your schedule and availability.
31. Get rid of a habit
Habits consume you. They may seem difficult if not impossible to break. However with enough discipline it can be done and will save you tons. Stop smoking, how much are you spending on cigarettes weekly. Got a gambling problem? Quit. Shopping online? Delete the websites or Amazon from your browser. People tend to make more impulsive purchases when shopping online compared to shopping in stores.