Saving for a down payment is one of the more challenging tasks faced by would-be homeowners, especially in this day and age of sky-high rent, hot real estate markets, and exorbitant home prices.
Although saving enough money for a down payment has its challenges, it’s definitely not impossible. In fact, with some planning, discipline, and budgeting know-how, you can turn your home purchasing dreams into reality.
If you’re looking to save for a down payment on a home, use these strategies to help you get there:
1. Eliminate High-Interest Debt
When it comes to saving, your first step should be to pay down that debt, pronto. However, not all debt is created equal – high-interest debt is especially damaging to a down payment savings plan.
It’s that much more difficult to save when you’re stuck paying 22% interest on your credit card – plus, it just doesn’t make much financial sense. That’s why tackling that high-interest debt will help you get the clean slate you need to start getting serious about your savings.
2. Establish Your Budget
You can’t begin saving until you figure out how much you’ll need to save – that’s why it’s important to establish a budget before you begin your down payment saving plan.
Sit down with a financial advisor or mortgage lender and figure out the maximum mortgage amount that you could qualify for. Then, figure out how much of a down payment you would have to make from this amount – ideally 20%, although the minimum is 5%.
3. Cut Down on Unnecessary Expenses
It should go without saying that a large portion of your savings plan should be dedicated to cutting down on unnecessary everyday expenses – and that means making some sacrifices in your routine.
We all have those small, everyday purchases in our lives that don’t seem to cost too much in the moment but end up costing a great deal in the long run – like morning lattes, buying lunch every day, eating out multiple times a week, and refreshing our wardrobes monthly.
You’ll be surprised at how much you can save by eliminating these unnecessary expenses from your life – at least until you’ve tackled that down payment.
4. Automate Your Savings
When payday hits, the last thing we want to do is think about saving for your future down payment – because, let’s face it, there are so many more immediate expenses that we might be tempted to address, whether or not they’re absolutely necessary.
That’s why the best way to get a head start on your savings is to automate it. Set up an automatic transfer for each payday to send money into your savings account automatically. This way, you’ll get used to working with the amount of money you have left after you’ve set aside those savings, removing the temptation to spend that future-down payment money on other, more immediate expenses.
5. If You’re a First-Time Buyer, Consider Government Incentives
Saving for a down payment as a first-time home buyer is a challenge – that’s why the Government of Canada has put into place some helpful programs to help first time buyers with their home purchase.
Learn more about the Government of Canada’s Programs to Support Homebuyers, including tax credits, incentives, and The Home Buyers' Plan.