As children, our earliest memories are those of sitting on the living room floor – colourful crayons or Lego blocks in hand – drawing & building imaginary houses. That’s our first peek into home ownership, something which eventually becomes such an important part of our adult aspirations! Deciding to buy a home is one of life’s most rewarding experiences and possessing our own home makes us feel mentally settled. Saving for the down payment, however, is another story altogether. It can be one of the biggest problems on the path to achieving this dream.
Fear not – condo or house, city or town, we’re here to make this step simpler for you. Here are our top 6 tips to save for a down payment for a home in Canada.
- Become a Strategic Goalkeeper
- Think Smarter, Save Faster
- Small Changes, Big Rewards
- Speak to Your Financial Advisor
- Home Buyers Program & Other Incentives
- Side Hustles
1 – Become a Strategic Goalkeeper
While the housing market can often seem overwhelming with its dynamic changes & shifting trends (especially in a post-pandemic world), seasoned homeowners know its all about strategic goal setting. Start your plan with researching how much you would be able to afford when purchasing a property, what mortgage rate you’ll qualify for & how much you would need to put aside for a down payment in the current market.
For example, a purchase price of $500,000 or less requires a down payment of 5%, while a price of $1 million or more requires a down payment of 20%. Then, keeping in mind the % of down payment you need to pay, work backwards, and fix your timeline for buying a home. Did you know that people who write their goals are more likely to achieve them? Writing down your goals or making a vision board will make it simpler to plan how much of your income to put aside each month.
Bonus Tip: The bigger your initial down payment, the lesser the mortgage and the easier it becomes long term, as you will save a lot on interest charges. So, try aiming a little higher than the lowest % of the required down payment.
2 – Think Smarter, Save Faster
Make a non-negotiable commitment to yourself, of saving a fixed portion of your salary every month. Out of sight is out of mind. By keeping this money in a High-Interest savings account,
you increase your total earned income. Working professionals can improve their salary by asking for a raise during their annual performance review & saving their bonuses for their down payment.
Bonus Tip: Nowadays, there are a wide variety of free tools available to track expenses and control your monthly budget, such as apps like Spendee or offline tools like Microsoft Excel. With smart financial planning, you’ll soon be on your way to buying your dream home.
3 – Small Changes, Big Rewards
Remember when you saved all that money in your piggy bank as a child and were rewarded when you got to spend it on something you loved? Now, as an adult, imagine the thrill of buying a home in the future, and take small actions in your daily life that will leave you with a lot more savings for your down payment!
There are so many ways to cut down on expenses, for instance – just by cooking at home and not dining out, you’d save a whopping $2800 a year! Is buying that $5 coffee everyday at the coffee shop worth it, or could you prepare your coffee at home instead and carry it in a travel mug? That would amount to almost $1800 in savings each year in coffee alone!
Bonus Tip: Some other ways to avoid overspending are – book cheaper holidays during off-seasons, look for coupons or better deals while shopping, seek free subscriptions & downloads and join the neighbourhood library instead of frequently buying new books. For those who can do without a personal car, taking public transport (or renting a car when required) is much cheaper than the cost of buying & maintaining a car.
4 – Speak to Your Financial Advisor
Seek professional advice from a trusted financial advisor who will help you build your wealth and manage funds through a customised strategy.
There are multiple ways your advisor can guide you in making your money work for you and help grow your savings faster. This may include opening a Tax-Free Savings Account (TFSA) and
investing in Guaranteed Investment Certificates (GICs) & diversified portfolios such as stocks, bonds & mutual funds.
Bonus Tip: Many settlement agencies have free services available, to help newcomers make informed decisions & plan their finances around buying a home.
5 – Home Buyers Program & Other Incentives
To encourage buyers in an expensive real estate market, the Government of Canada provides various incentives. First-time home buyers may be eligible for certain tax-breaks as well as the shared equity mortgage plan provided by the Canada Mortgage & Housing Corporation (CMHC), which offers financing without interest.
Another incentive for first-time homeowners is the Home Buyers Program (HBP). Under this federal program, you can open a Registered Retirement Savings Plan (RRSP) account with your bank & eligible home buyers may borrow up to $35,000 (tax-free) from this account to use as a down payment on their first home. Banks such as RBC also offer services to advise clients on how to plan their repayment strategy.
Bonus Tip: If you’re a newcomer, start your RRSP plan as soon as possible and keep contributing to it, to take advantage of this program in the future.
6 – Side Hustles
A smart way to boost your fixed income is to take up a side gig that adds to your existing income.
Got a passion for playing the guitar? Why not charge a small fee and teach classes in the neighbourhood! Make jewellery from random objects? Why not sell them online and make money off your creativity! While it can be tiring to work on the weekends or take up freelance projects from the other side of the world, when you get that additional paycheck, it makes the hard work worthwhile. With remote and hybrid work options today, it’s easier to take up more opportunities and save faster for a home down payment.
Bonus Tip: If you’re confused about which side hustle will work best for you, there are plenty of quizzes online to help you discover your dream side gig!
While it takes time to save enough for a down payment (typically between 2 -5 years), little steps each day will eventually lead to big gains. Saving for a down payment and buying a home is not just an economic investment, it’s also an emotional one.
Jenny*, a Canadian Permanent Resident based in Toronto, is in the process of buying her first home in Canada. She says, “When I first decided to move to Canada, I wish someone had advised me to immediately start planning my finances – keeping in mind that I would need to buy a home in the future. After landing here and coming across many homeowners in my network, I saw that they felt more connected to this country and the community after owning a home. You really feel like you truly belong here, and nobody can take this confidence away from you. This is what I want for myself too!”
I asked her about her strategy and if she had any advice for other immigrants.
“To be honest, a huge part of saving was just cutting down on unnecessary expenses and focusing on the big picture. I’ve been able to take this step in the present, because of my practical planning in the past. My advice would be – no two people have the same lifestyle or goals; so, work hard, stick to your own timeline and don’t be tempted to spend on temporary things. Because it’s all worth it in the end & so exciting when you save enough to buy your very own home!”
With the above tips on smart saving, good financial planning, and a sustained vision for your future – you’ll soon be on your way to celebrating a big milestone in your life – that of owning a home in Canada!
