Are you excited about the prospect of buying your first home, but just can’t figure out how to get that down payment nailed down? It’s not easy to save up for something as monumental as a down payment. However, having a strategy in place for your down payment can have great long-term financial benefits and set you up for success as a homeowner. Here are a few key ways to get started:
Before you begin your house hunt
Long before you actually start looking at houses, it’s important to take time to assess if you are financially and personally ready to buy a home. Ask yourself the following questions:
- Is owning a home a priority? Maybe there are other things that are higher up on your list, such as completing your education, travelling, or starting that business venture you’ve talked about?
- Have you dealt with your debt? If you are carrying too big a debt load, a lender will quickly reject your mortgage application. Further, if you are paying down debt, how will you be able to save for a down payment? You may need to start on a financial plan to dig out of debt before doing anything else.
- Are you ready to reduce your expenses? Saving up usually involves making sacrifices in order to get what you want. You may need to make some temporary, but big changes, such as getting a second job, going out less, limiting take out food, saying no to vacations, cutting back on cell-phone costs, or making your holiday gifts instead of buying them.
- Do you know what you can afford? Do your research and make sure you know how much home you can afford based on your income, the anticipated taxes, and monthly bills, and what type of down payment you’ll need.
Understanding your options
Homebuyers in Canada have some great options when it comes to buying a home. Here are a few of the choices when planning your down payment:
- Conventional mortgage. With this arrangement, your lender can approve up to 80 percent of the purchase price of your home, meaning you need to have the remaining 20% saved up as a down payment.
- Insured mortgage. This means that while you don’t have the full 20% for your down payment (minimum 5% required), you can still qualify for a mortgage with one of the three insurers: Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty, or Genworth. In the long run, you’ll pay more in interest with this type of mortgage, and it can take longer to pay off your home.
- Home Buyer’s Plan (HBP), which lets first-time buyers borrow money (a maximum of $35,000 or $70,000 per couple) from their RRSPs to apply to their down payment.
- The new First Time Home Buyer Incentive may be a consideration if your household income is less than $120,000, you want to buy a home that costs less than $480,000 and are hoping to save on your monthly mortgage costs.
While these options can help narrow down your choices and help get you closer to understanding what you need for your down payment, you still need to have a solid savings plan in place. The more you can save, the less you’ll spend on interest over the course of owning your home, and the faster you can build up equity. Be sure to talk to someone who knows the real estate business as well as the mortgage business, whether it’s your first home purchase or your 5th! As a Mortgage Broker in Edmonton, I can guide you through the home buying experience and help you find a mortgage solution that really works for you. Connect with me today!
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors