If you are thinking of buying a house, one of the things you’ll need to do first off is to save up a down payment. But if you are already struggling to make things meet, how can you possibly do that? Here are some tips to get your finances sorted for a down payment?
Image: Vinish Saini
1. Get your financial house in order.
You can’t save money until you figure out how much money you are spending every month. If you do a budget and find out that you are spending more than you take in, you will not save any money, no matter how hard you try. Write out a comprehensive budget that has some room for savings, and stick to it!
2. Figure out how much you need.
Most lenders ask for 20% of the home’s cost as a down payment. For the average home of around $350,000, that works out to be $70,000. Unless you are making significantly more than this, you will not be able to save this in less than two to three years. Even then, it might be a stretch (particularly if you have no partner).
You can buy a home with less than this amount as a down payment, but it will require you to buy mortgage insurance. Even then, you will need at least 5% as a bare minimum, and on a $350,000 house that works out to be a little less than $20,000.
In other words, no matter what house you want, you will need to save a substantial amount of money, and it will take a few years. Take this into account when you are setting your financial goals.
3. Get your savings working
When you do start saving, make sure the money you are putting away isn’t going in some low-interest account. Look for high-interest savings account, or for a tax-free savings account. If you know that you aren’t going to be buying a house for at least three years, you can usually find a high-yielding money market fund that requires you to lock in for that length of time. If you don’t want to expose yourself to the risk, try a GIC or a savings bond. The trick is to use the fact that you won’t be touching this money for an extended period to your advantage.
4. Your RRSPs can help you.
The Federal Government has made it possible for you to withdraw about $25,000 from your RRSPs to put toward your home, and you will not be taxed on this withdrawal amount. If you are a first-time home buyer, you likely will not have this much money in your RRSPs yet, but any little bit helps.
Heleen Jacobsen
Broker of Record with InfoMarket Group GMAC Real Estate
www.infomarketgroup.com
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