In the Canadian housing market, it’s hard to buy a home without having a substantial down payment. From everyday expenses to paying off student loans, you may not think there’s a realistic answer to how to save for a down payment on a home. However, buying a home is more than just something to daydream about. It can be a reality. That doesn’t mean that saving for a down payment isn’t hard work. Here are some tips to make home buying easier.
1. Figure Out the Type of House You Can Afford
This is the most important step when you start wondering how to save for a down payment. Research the average home prices in the areas where you want to live. Remember, you need to have at least 5 percent of the sale price as a down payment. Take time to do your research and visit a mortgage agent to find out how much you can truly afford when it comes to your first home.
2. Start Planning
When do you want to purchase your home? Of course, you want to answer “now!” However, it will take a little time to save the money so you need a timeframe. One way to do this is to know the difference between the rent you pay now and your projected monthly mortgage payment. Let’s say that you currently pay $800 in rent. The houses that you want have an estimated mortgage payment of $1000. You would then save at least an extra $200 each month for your down payment.
Besides saving money, this method has other advantages. Typically, you move from renting to paying a mortgage. Paying a mortgage can be quite a shock when you are paying more such as double the amount you would in rent. This way you are prepared ahead of time for the reality of paying a mortgage.
3. Determine How to Save for a Down payment
You know how much money you need to save. Now you must answer the question, “How are you going to save the money for the down payment?” Review your spending habits. Look at:
- Unnecessary expenses.
- How you spend disposable income.
- How you waste money.
After you look at your spending habits, make a list of the extras in your life like cable TV or an overly expensive cell phone bill. By cutting back on expenses and putting yourself on a budget, you’re able to save extra money toward your down payment.
4. Do the Hard Work of Saving Money
Now the hard work begins. It’s not enough to make plans. You have to put those plans in motion by saving money. You can set up a bank account and add money each week. If you aren’t good at putting money in the bank, have someone else do it. Have your lender create a savings account that you don’t have access to. Make sure to have the money you need to save each week placed in your special savings account.
Saving money for your home requires a lot of work. Sometimes you may be able to have a smaller down payment by improving your credit. If you have what any Canadian lender considers less than ideal, you may want to talk to a credit counselling service. Services like Credit Counselling Services of Atlantic Canada will help you reorganize your credit history. It provides budget counselling, consolidation and debt management solutions.
Your future home is waiting for you. You just have to do the hard work of making your dream become reality!