One of the biggest challenges facing first time home buyers is saving the downpayment. Here are 6 tried-and-true ways of saving money to buy a house or condo:
- Found Money Found money is my favourite kind of money and can really help pad your downpayment. From bonuses to birthday cheques from Grandma to money from your beer bottle returns to my favourite: that magical date when you max out on your EI and CPP contributions and your pay suddenly goes up by hundreds of dollars until the end of the year. You won’t miss found money – just pretend you never had it in the first place. Cash those cheques and deposit them immediately to a safe place.
- The Latte Factor I know you’ve heard this one before, but making a bunch of small changes in your lifestyle can help you save literally thousands of dollars. From cancelling magazine subscriptions and gym memberships you don’t use, to yes, forgoing your daily venti americano and bringing your lunch to work, making small changes now will help you buy your first home faster. Figure out what you can live without and direct that money automatically to your savings account
- The Bank of Mom and Dad If you’re fortunate enough to have a family with a little extra cash, the Bank of Mom and Dad can be a lifesaver. It’s not easy being a first-time buyer in Toronto where starter houses cost over $500,000. Parental help can often mean the difference between buying what you want and buying a 400 sqft condo with no windows in a bad part of town. Of course, parental contributions generally come with strings attached, so be prepared for guilt trips and unsolicited advice about what you’re buying.
- The Home Buyer RRSP Plan The government allows first-time Buyers to take up to $25K from their RRSP tax-free to use towards the purchase of a first home. If you haven’t been regularly contributing to an RRSP, consider taking the money you’ve saved and flipping it through an RRSP for 90 days. You’ll be eligible for a tax refund for the contributions you make, which you can use to help pay closing costs. It’s an easy way to increase the size of your downpayment by up to 40%. Of course, this strategy works best for spring purchases when you get your tax refund in time to help with the costs.
- Practice Mortgage Payments If you’re currently living with your parents, consider banking the money you’d otherwise be paying in rent. Better yet, figure out how much your mortgage payments/taxes/condo fees will be when you do buy a home and start putting that money away now. It’s a great way to increase your downpayment – plus you’ll already be used to the payments when you actually do get your house or condo.
- Better to Be Safe Than Sorry Save your downpayment in a separate bank account, ideally one not accessible from a bank machine so that you won’t be tempted to dip into it for a last-minute vacation or a spontaneous round of drinks. Talk to your financial planner or bank about where you should invest it – while it might be tempting to try to make some quick money in the stock market, you might end up losing your hard-earned cash. Back when I was a first-time Buyer, I saved my downpayment in a GIC RRSP – the interest rate was ridiculously low but at least I knew the amount I saved wouldn’t decrease.