For many Canadians, especially first-time homebuyers, saving enough money to buy a house can seem daunting. With the rising cost of living and competitive housing markets in many areas across the country, putting enough money aside to become a homeowner may even seem impossible. However, small, consistent changes can make a difference in helping you achieve your goals.
If you’re not sure how to start saving for a new house, try a few of these tips to jumpstart your savings goals and get closer to purchasing a home:
- Determine how much you’re willing to spend on a home so you can set your savings goal. Work closely with a real estate agent to understand the current housing market and the average purchase price of a house in your desired location. Once you have a budget, you can calculate how much of a down payment you’ll need. For homes below $500,000, down payments can be 5% of the purchase price, while homes above $500,000 require a down payment of at least 10%. At a purchase price of $1 million or more, a down payment must be at least 20%. Just remember — if you’re paying down less than 20%, you’ll also need to purchase mortgage loan insurance This is an external lin.
- Start early and set small goals. When you think about how much you’ll need to save overall, the thought of securing a down payment can seem impossible. Instead of thinking about the end goal, try to set smaller, short-term savings goals. Giving yourself lots of time to save can also alleviate the pressure to save as much as possible in a short period.
- Automate your savings. Set up pre-authorized transfers through your bank so you can regularly set aside money into a tax-free savings account or your RRSP on a schedule that works best for you. Round-up apps can also speed up saving by rounding up all your purchases to the nearest whole dollar and transferring the difference to your savings account. If your employer offers an RRSP matching program, you’ll want to take advantage of this simple way to seamlessly direct additional funds to your RRSP, which you may be able to put towards your down payment if you’re a first-time buyer.
- Change up your spending habits. We get it — prospective homeowners are tired of being told to spend less on avocado toast. While spending less on meals out or cutting out your daily latte can be helpful over time, other habits can boost your savings without reducing your ability to enjoy some of the finer things in life. Using new spending hacks, like only paying with cash, can make you more mindful of your budget. If you get a new job, a promotion, or take up a side hustle to make more money, try to avoid “lifestyle creep” — suddenly making more doesn’t mean you should start spending more.
- Pay off debt while building credit. Saving up for a house isn’t just about how much money you can set aside. It’s also about how much borrowing power you have when it comes time to apply for a mortgage. Paying off debt and keeping a high credit score will show lenders you’re reliable, meaning they may offer you a higher mortgage. Start by paying off your smallest debt with the highest interest rate, and always pay off your credit card in full each month.
- Take advantage of government programs. First-time homebuyers may qualify for The Home Buyers’ Plan (HBP), meaning you can withdraw up to $35,000 from your RRSP to buy or build a qualifying home. The First-Time Home Buyer Incentive may also be a good option if you need additional support saving up for a down payment. Through this program, the Government offers 5 or 10% of the home’s purchase price for the down payment, lowering your mortgage carrying costs and reducing some of the stress of saving.
- Plan for the many expenses associated with homeownership. Be prepared for the additional expenses that come with homeownership. Along with saving for your down payment, make sure you’re setting aside additional funds for closing costs, hiring a home inspector, and paying for home insurance. If you need to buy appliances, or you’re planning to renovate soon after you purchase, you’ll need to take those costs into consideration as well.
While following these tips could certainly help you get closer to owning a home, getting into the housing market may simply not be feasible for some, depending on your financial situation and market conditions in your location. For others, renting may better suit your lifestyle, and home ownership might be a goal you’re not pursuing at all. No matter what your goals are, if you’re currently renting or you’re searching for a new place to rent, make sure you protect yourself with the right tenant insurance.
If you’re considering purchasing a home, it’s good to shop ahead for home insurance and be aware of some factors that could affect your insurance premium and coverage. To find the right home insurance coverage for you, get in touch with OTC Insurance today!
With thanks to Economical Insurance for their editorial contribution.