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How Do You Save A Down Payment? You Make A Plan!

How Do You Save A Down Payment? You Make A Plan!

couple looking at their down payment amount on paper

couple looking at their down payment amount on paper

Searching for a new home is the exciting part of your house hunt. Scrolling on the internet, judging each house one by one until you find one that immediately catches your eye and you just know that THIS is the one you must see. You visit the home and instantly fall in love. You could move in tomorrow if you could! However, the housing market is always booming (people need places to live after all) and it’s a very competitive market. You already did the smart thing by getting pre-approved for your mortgage by Darren Robinson but, there are many offers on this amazing property on the table. The deciding factor comes down to the downpayment… and that’s where you may be lacking. You put the best offer you can into the home of your dreams but, you come up short. That is the worst feeling, and I’m here to help you get rid of the down payment blues and to help you budget correctly so you can ensure you secure your dream house or at least compete when it comes to the offer stage.

Do the smart thing (if you haven’t already): get pre-approved before your house hunt

It’s always a good idea to get pre-approved for a mortgage before you end up finding a home that you fall in love with. This ensures you have all your documents in line, and that you would be able to afford the monthly mortgage payments of the homes you’re looking at. Sure, we all want to live in a multi-million dollar home, but for many of us, that’s out of the question. By getting pre-approved, you will have a ballpark as to what price range you should search in, which is key to getting started.

Do you use a TFSA or RRSP?

When you start saving up for a down payment, it’s better to start as early as possible and to keep the money in a separate account. A tax-free savings account (TFSA) means the interest you make on your savings will not get taxed when you take it out. Plus, you can take money out at any time. The downside is that with this account it can be tempting to spend the money that you’ve been working hard to save for your down payment. A registered retirement savings plan (RRSP) does get taxed when you take the money out, but contributing to your RRSP can also save you money when tax season rolls around. It also collects interest as time goes by making you money but, it’s meant to be a long-term investment strategy unless you plan to take advantage of the first-time home buyers program.

So which one do you choose? It all depends on how long you’ll be saving up for your down payment. If you plan on buying a home in a year or so, then a TFSA may be the best option for you. If you have suddenly been gifted a large chunk of cash and you don’t plan on buying your home for a few years an RRSP might be the better option. Figuring out which savings strategy makes the most sense for you can be tough. That’s why it’s important to work with a financial advisor and a mortgage broker — Luckily for you, I happen to be both.

Know that government grants are available for first-time homebuyers

There are many government initiatives that can help you with your down payment on your home.

The Home Buyers’ Plan

Through this program, you can withdraw up to $35,000 from your registered retirement savings plan (RRSP) without penalty. Couples can withdraw up to $70,000. The catch: The money must be repaid annually over 15 years, otherwise, it’s taxed as income.

The First-Time Home Buyers Incentive

This incentive helps first-time homebuyers cover 5% or 10% of the purchase price of the house through an interest-free loan. You have to pay the government back the same percentage of your home when you sell or after you’ve owned the home for 25 years. To qualify for this loan, you will have to review your household income, mortgage amount, and the location you plan to buy in. This program has been extended until 2025.

The Land Transfer Tax Rebate

The land transfer tax paid on the first $368,000 of qualifying homes may qualify for a rebate of up to $4,000 for first-time home buyers. To claim the refund, you must be a legal adult who has never owned a home or has an interest in a home.

As you can see, it’s important to get all your paperwork and finances in check before you start searching for a new home. It makes the process much smoother and ensures you’ll be at the forefront of the bidding process when it comes to making an offer on the home you want to call your own. As a reputable mortgage broker and financial advisor, I can help you get all your ducks in a row while explaining your mortgage options from multiple perspectives so you make informed decisions throughout the process. Give me a call at 705-315-0516 or send me a message to discuss how I can help you get pre-approved for the mortgage you need while ensuring you budget for your down payment successfully.

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