One of the biggest struggles when looking to buy a home is saving for your down payment. While the initial cost can be hard to swallow, making a solid target and plan for your savings can make it much more feasible. Let’s take a look at some simple steps you should follow to help lower your savings stresses and stash some cash for your down payment.
Settle On A Target
When it comes to your down payment, the exact amount can be a bit of a grey area. While 20% down is a standard across the board, there are some exceptions. For example, some home buyers can be exempt from the full 20% down so long as they secure mortgage insurance. Finding a loophole to allow you a lower down payment, can seem like a lucky break, but you should be aware that it can come back to bite you in the behind later on. I suggest you sit down with your mortgage broker and discuss all options, to get a full understanding of how much your down payment will be, and a feasible timeframe to save for your target amount before setting out on your house hunting journey.
Factor In Closing Costs
There’s more to home buying than just your down payment. It’s important to also factor in any additional closing costs and unforeseen expenses when you set your savings plan into place. Consider costs like home inspections, land transfer taxes, legal fees, CMHC insurance and appraisal fees. Typically, closing costs can be approximately 1.5% – 4% of your total home cost. Therefore, if you’re buying a home for $250,000, you’re additional closing costs can be as much as $5,000 – $30,000, which is a far cry from pocket change!
Check Your Resources
Once you’ve settled on your target amount and time frame, it’s time to start exploring your resources for cash. Looking into things such as personal savings to begin with and don’t forget you are also allowed to withdraw up to $25,000 from your RRSP, however, there is a catch. While you can easily remove this money, there are stipulations as to how much you can put back into the savings account per year and you will have to pay back everything you take out eventually. Using savings from your RRSP also means that you aren’t going to enjoy the benefit of interest on that money compounding over time to increase your investment until you pay it back. This is something to consider which is often overlooked before you tap your retirement to lessen your down payment savings.
Make A Plan
It’s not enough to just have a target amount to save for your down payment. It’s also important to set a plan into motion to achieve that goal. Take a look at your monthly expenses, everything from bills to disposable income to luxuries you can sacrifice, and plan how you can stash that cash. Consider cutting out things such as dinners out, expensive clothing or even things as small as dropping your Starbucks habit for a bit. It can seem initially overwhelming to save such a large amount, but cutting out small costs can really add up and fill your homeowner piggy bank.
Don’t Ignore Expenses
While I strongly encourage you to wholeheartedly save towards your home owning goals, it’s also important that you don’t ignore other financial responsibilities. Be sure you’re keeping on top of your bills, expenses and credit cards while you save. While it may be tempting to ignore them for a short while in order to save faster, leaving bills unpaid can actually hurt your financial record, credit rating and can end up costing you your approval on your mortgage. I can’t stress enough that you factor in all of your monthly costs to your savings plan including your debt and loan payments as well as everything from groceries to gas, in order to avoid debt catching up with your down the line, when it comes time buy the home you’ve been saving for.
Saving a large sum of money can be a tough task to take on. However, with the right plan in motion and a well-planned set of saving tactics, you can soon turn that dream home into your fixed address. If you have any questions about how much the down payment you will need will be and strategies for saving to buy a home, don’t hesitate give me a call at 705-315-0516. I am always here to help you make sound financial decisions to get your family into your dream home while also building a strong financial future.