The real estate market is ever changing and owning a home has become a little harder to attain with recent surges in the market. But it’s not unattainable. If you are looking to buy a home in the next couple years but aren’t quite sure how you can save up for the down payment, we have 3 ways you can start saving now.
First let’s break down what a down payment is. A down payment is a lump sum of money you put down on a large purchase, like a house, to cover a portion of its price. Typically this payment is made in cash and can’t be put on your credit card. Having a down payment is definitely critical when getting approved for a mortgage. This down payment will then be deducted from the purchase price of your home and your mortgage lender will issue a mortgage on the remaining amount.
Pay Off Your Credit Card Debt
The truth is you will have a harder time saving when you are continually making interest payments to someone else. It’s best to start with your smallest debt and work your way up to your biggest debts. By paying down your debt you are freeing up money that you can save for a down payment. Also something to remember is that when you apply for a mortgage and you have too much consumer debt, your likelihood of qualifying goes down.
Borrow From Your RRSPs
Did you know that you can withdraw up to $25,000 from your RRSP in order to purchase your first home? If you already have some RRSPs this can be a great option to come up with a down payment. But not everyone has this option. Opening an RRSP is a great way to save money and at the same time getting a tax credit to help reduce your taxes. Keep in mind that this money needs to be repaid back to your RRSP within 15 years, otherwise it is treated as income and you will have to pay tax on the money you withdrew. Your best bet if you are leaning towards this option is to speak to a financial advisor to help you learn the ins and outs of borrowing from your RRSP.
Cut Down On Your Expenses
One of the easiest ways to start saving for your down payment is to evaluate your current spending, almost always you will be able to notice different spending patterns and how you can cut down on them. If you frequent restaurants, try limiting yourself to a couple times a month and then taking the extra money that you would typically spend on dining out and put it into a savings account. The same can be down with your daily coffee money, or online shopping habits, or expensive vacations. You will be pleasantly surprised at how quickly this will add up.
Saving for your down payment doesn’t have to cause financial hardship. Speaking with a financial advisor is a great way to get the ball rolling. They will help you to figure out ways you can save, help you create a budget, and open up a savings account for you. Home ownership can be in your future with a little saving.