Seven effective ways to save for a down payment on a house
One of the most important things to consider when buying a house is how much you can put towards a down payment. After all, the size of your down payment will affect both the amount you need to borrow and the range of financing options you qualify for.
However, keep in mind that saving for a larger down payment takes careful planning and discipline. In this light, we reveal several strategies that can help you get started.
1. Plan around a clear and realistic goal.
The first step to saving for your down payment is finding out how much you need and planning around that amount. A great way to do this is by speaking to a mortgage broker, who will be familiar with the ins and outs of the housing market and can help you come up with a realistic target.
2. Streamline your monthly expenses.
Once you know how much you need, plot out your monthly expenses and see where you can reduce costs. You should also aim to rein in bad spending habits, such as impulse shopping during online sales.
3. Craft a budget you can stick to.
Finding a good balance between your needs, wants and savings is key to crafting a budget you can follow. One effective way to do this is by using the 50/30/20 ratio, which allocates 50% of your income for needs, 30% for wants and 20% for savings or debt repayment.
4. Ask your bank to automate your savings.
Most banks now offer tools that can automatically transfer a portion of your pay cheque to another account. These services can help remove the temptation to spend your savings, keeping you on track to reaching your down payment goal.
5. It’s important to take time off to recharge – but remember that vacations can be expensive!
It’s vital to look after your mental health by taking time off to destress. However, holiday trips to high-end destinations can be expensive, so it might be more practical to consider cheaper alternatives such as staycations at a local hotel or glamping at a nearby provincial park.
6. Find ways to supplement your income.
You can reach your down payment goal faster by exploring opportunities to make a little extra income. For instance, you can take on a second job, rent out a spare room, or engage in a side hustle like driving for a carsharing service. Just make sure that the extra income goes towards your savings.
7. Consider asking for help.
While this might seem like a last resort, it is not unusual for home buyers to ask relatives for help with their down payments. In fact, a Leger survey of Canadian parents conducted in 2019 found that nearly a quarter of respondents have helped their children buy their first home. Just remember that lenders need to verify the source of your down payment, so any support must be in the form of a gift and not a loan.
With careful preparation, discipline and guidance from a skilled mortgage broker, saving for a down payment doesn’t have to be stressful. And when you’re ready to buy your home, Home Trust has a range of financing options available. Learn more by visiting hometrust.ca/mortgages.
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