Looking to Buy a Home in Canada? Here’s How You Can Save for Your Downpayment

Buying a house is a common goal for most Canadians. Besides building equity, real estate has appreciated steadily over the past twenty years, making it a smart investment.

One of the biggest challenges when buying a home is saving money for the down payment. This takes self-discipline, patience, and some really good budgeting skills. But don’t fret!

Small tweaks to your lifestyle, a bit of creativity, and some savvy tips on saving will get you that house faster than you think.

How Much Do You Need to Save?

First-time home buyers in Canada can put as little as 5% of the purchase price down. But if you want to avoid costly mortgage insurance, aim to save at least 20%.

Let’s put that into perspective: a home listed at $1,000,000 needs a minimum 20% ($200,000 down payment).

When you buy a home in Canada, you’ll need to pay closing costs for things like lawyer fees, home insurance, and taxes. Aim to save another 1.5% of the purchase price for your closing costs. Your lender will need to see proof of this. So for that $1,000,000 home, you’ll need to save an additional $15,000.

Now, let’s look at how to get you all this money.

Understand How Much You Can Afford

If you don’t already have a budget, make one. Start with a list of all your expenses and everything you spend money on monthly. Then turn that list into necessary spending vs unnecessary spending. Knowing what you can afford will depend on a few things:

• Your current financial situation (debt-to-asset ratio)
• The expenses that come with owning a home
• Using an online mortgage calculator to set different scenarios will give you an idea of what your monthly mortgage payments will be
• Compare fixed and variable mortgages to see which is best for you

Adjust Your Current Budget Plan

There are so many ways to cut back or cut out on expenses, you’ll be amazed at how fast your savings add up. Especially when you pair it with earning some extra cash.

Small Changes Go a Long Way

Here are just a few small changes that can make a big difference in your savings:

• Being price-conscious when grocery shopping
• Making lunch instead of buying
• Planning all meals ahead to avoid last-minute take-out
• Biking or walking to work
• Dropping down a level or two on your cell phone plan
• Reducing or getting rid of your cable channels
• Making a thermos of coffee instead of stopping every morning
• Quitting smoking
• Selling things you don’t use
• If you get a tax refund, drop it into your savings

Make Extra Money

If you’re already following a pretty tight budget and have no room to tighten up, consider getting a part-time job or side-hustle:

• Deliver flyers
• Food delivery or rideshare
• Telemarketing
• Online surveys
• Make and sell crafts
• Any hidden talents? Freelance them out

You’ll quickly find that every little bit helps, as long as that extra money goes directly into your savings.

Where to Save Your Money

There are a few options for saving and growing your down payment. It all depends on how long you need to save for and how much risk you’re willing to take:

First Time Home Buyers Plan

First-time home buyers who have RRSPs can use up to $35,000 tax-free towards their down payment. But here’s the catch: you’ll need to repay the full amount within 15 years starting the second year after purchase.

Tax-Free Savings Account (TFSA)

Here you can save money and not pay taxes on the interest you earn. Withdraw funds anytime without paying taxes.

High-Interest Savings Account

You’ll need to have self-discipline when using a high-interest savings account as you have access to your funds anytime you want it. You should reserve the money in this account solely for your deposit, down payment, closing costs, and home inspections. Interest rates will vary and a few points can make a difference, so shop around for the best rates.

GICs

GICs are a great way to earn interest as they guarantee a rate of return over a length of time (between 30 days and 10 years). If you know how long you’ll be saving for, choose a term that suits your plans and lock your money away.

The Stock Market

The stock market isn’t a place to save money. But if you’re willing to take the risk, it can potentially grow your money over time. Time is the key thing here. If you aren’t planning on buying a house in the next 5 years, the stock market can help grow your savings—if you do it right.

When you invest your money in stocks that traditionally grow, you have a higher chance of making money. But the stock market is a risky avenue because it goes up and down all the time. There’s a chance you could lose money here, so if you aren’t willing to take that risk, stick to GICs and high-interest savings accounts.

The Bottom Line

The real estate market in Canada has reached new heights. Homebuyers have to save more than ever because of higher prices. Tighten up your budget, change some habits, devise a savings strategy, understand your financial limitations, and before you know it, you’ll be moving into your new home

Are you looking for a savvy partner to help you save for a house in the Toronto area? I can help. Get in touch with me today to learn more about how you can achieve your dream home.