Amassing enough money for a down payment can seem like an uphill battle for those wanting to purchase a home. The important thing is to keep an open mind.
The minimum for a down payment is 5% of the property’s value. But ideally, it is better to aim for 20% or more to avoid having to pay for mortgage insurance (which will be mandatory otherwise). This means that for a $200,000 condo, you will need to have $40,000 on hand. That’s a lot of money! Yet it is a perfectly achievable goal if you embrace all the available options.
1— Transfer Your RRSPs to your down payment
As you know, it is impossible to make tax-free withdrawals from your RRSPs before retirement. Except for the purchase of a first home! The government’s Home Buyers’ Plan (HBP) allows first-time homebuyers to take up to $35,000 per person out of their registered retirement savings plans for use as a down payment. Repayment (back into your RRSP) begins the second year following the withdrawal and must be equal to at least 1/15 of the funds removed. The amount must be fully reimbursed within 15 years.
2— Automate Your Saving
If you can’t help spending whatever is in your checking account, why not set up automatic deposits into a savings account (on payday!). Make a point of not touching this money until you’ve reached your goal. Or direct this automatic transfer to an RRSP (which you will withdraw through the HBP program as explained above).
3— Consider Cohabitation
According to Statistics Canada, Canadians spend almost 27% of their income on shelter. That’s a significant portion of our overall expenses. Several first-time buyers were able to raise a large down payment by moving in with a family member for a few months. No one can take you in? Opt for a rooming house or a small apartment while you save what you need.
4— Ask for Love Money!
Love money is an interest-free loan from people who love us. However, we are aware that not everyone is lucky enough to be able to borrow money from a friend or family member. Still, it never hurts to ask.
5— Lean on a Financial Planner
If you can’t manage to discipline yourself, turn the task over to a financial planner. This professional assesses all areas of your financial life, suggests which expenses you should cut back on, and proposes ways to grow your money. Talk to them about your savings objective so they can guide you to the best of their ability.
With willpower and the tools at your disposal, you may be amazed by what you can achieve. And most importantly, give yourself a reasonable amount of time to reach your financial goal … and finally become a homeowner!