8 Ways to Save a Down Payment for a Home
There are many great ways that you can save for a home, but we have put together a list of what we think are the eight best ways you can save for a house. These tips can be used for saving for a home and can also be used for purchasing high end items such as a car, vacation, reno etc. It all depends on how motivated/disciplined you are to accomplish your financial goals. Here are our tips:
1. You must prioritize
Saving for biggest purchase in your life your home it is all about priorities and creating a budget. Ask yourself; how many times a month do I eat out? Do I drive brand new cars? Do I have the latest and most expensive gadgets? Knowing how to priotitize yourself which may including tightening your belt a bit to save for your home. Which is more important? If saving for a home is one of your top priorities, then try to identify other areas where you can cut back so that you can put more money into your savings. The best way to identify areas to cut back in is to do a budget. If you haven’t put together a budget yet, that is probably the best place to start.
2. Pay off your HIGH interest (credit card) debts first
How can you save money if you are paying the high interest debts you have? It is very dificult to save money doing so. Start with your smallest high interest debt, and pay it off. Then take the minimum payment from that debt and use it to help you pay off the next small debt that has the highest interest rate. Once you have that one paid off, the two minimum payments that you use to pay for those smaller debts can help you pay off your next debt faster (again choose a small debt with a high interest rate). You will notice a snowball effect as the minimum payments you are freeing up help you to make larger and larger payments against one debt at a time. This is one of the fastest ways to pay off debt.
3. Get rid of one car
If you have two cars, consider getting rid of one. This can save you $6,000 thousand plus dollars per year. You can move closer to where you work or where your partner works. You or your partner can look at walking, take transit, car pooling or even cycling to work (weather permitting). The savings on having one car adds up very quickly into some big savings. Bank all of this money. If you have doubts, try it first for a few months before to selling your car. If it does work, then sell that second car.
4. Save more from work
When you get a raise at work, take that extra money and save it in a separate savings account. It may not seem like much, but it will add up. Also try saving bonuses, extra sales commissions or tax refunds in your separate savings account.
5. Look for cheaper ways to do things
This is how smart people save a lot of money. They make a lifestyle of finding cheaper ways to do things without diminishing their fun. Here are some great examples:
- Do you buy a lot of new books? Try the library. They have zillions of books that you can borrow for free.
- Do you go out to a lot of movies? Try renting or sticking with cable. Some people are now even dropping their cable in favor of watching shows online. This works really well in the U.S., but it is getting better in Canada.
- Do you eat out a lot? Try eating out less or look for cheaper places to eat that you still like. You can also look for 2 for 1 coupons or buy an Entertainment Book and only eat at the places that have coupons (this will cut your eating out budget in half).
- Do you spend a lot of money on your hobbies? Try spending less or finding other hobbies that cost less—at least for a while.
- Do you buy a lot of new clothes? Try sticking with your current wardrobe for a little longer, or selectively buy clothing items that coordinate with what you already have. This will allow you to put together more outfits with fewer clothes. When you buy your clothes, look for sales.
- Do you take expensive vacations? Try something less expensive or closer to home.
- Do you buy a lot of new music? Try listening to the radio more, borrow music from the library or buy a card to monitor how much you download (and then you get what you actually want to listen to!).
- If you have a busy family, you can really save money if you eat at home more often (and this includes buying less snacks and drinks on the run), and look for fun things to do around your community that are free or don’t cost very much. If you go to the movies a lot, try renting. If you rent a lot, you could save even more by checking out the library. Many libraries have videos you can borrow for free. This option is really great for kids.
If you are able to work some of these changes into your lifestyle, you will definitely save money. However, the key to saving money is to resist the temptation to spend it on something else right away, and to start considering the cheaper alternatives.
6. Borrow from your RRSP
You can withdraw up to $25,000 from your RRSP to buy your first home. This is a great way to come up with a down payment if you already have some RRSPs. If you don’t, this may be a good way to save money for your RRSP and at the same time get a tax credit to help reduce your taxes. The only catch to this program is that you have to pay the money back to your RRSP within 15 years. If you don’t repay the money, it is treated as income and you will have to pay tax on the money you withdrew as though it were income. Check with your financial planner or advisor to see if this option is right for you.
7. Use the Tax Free Savings Account
The Tax Free Savings Account can also be a great place to save your down payment money. The money can grow tax free in this account. This means you won’t have to pay income tax on the money you earn as it grows in this account. Consult with your financial planner or advisor.
8. Know what the government offers First Time Homebuyers
Land Transfer Tax (LTT) Refund
- You must be at least 18 years old.
- You cannot have previously owned a home, or an interest in a home, anywhere in the world.
- Your spouse cannot have owned a home, or an interest in a home anywhere while they were your spouse.
- You may receive the refund at the time you register your home purchase. If not, you must apply for it no later than 18 months after the registration date.
First-time Home Buyers' Tax Credit (HBTC)
You or your spouse can claim this tax credit on your annual income tax return. The credit is based on an amount of $5,000. To calculate, multiply the lowest personal income tax rate for the year (15% in 2011 and 2012) by $5,000. For these years, the maximum credit is $750. Here's how it works:
- You or your spouse must have acquired a qualifying home acquired after January 27, 2009.
- You cannot have lived in another home owned by you or your spouse in the year you buy your first home – or in any of the 4 preceding years.
Also please do not forget if you save 20% down payment you will not pay mortgage insurance, if you don't then there will be an additional mortgage insurance fee added to your mortgage which ranges from 2.75% and less depending on your deposit. Let's sit down with our mortgage partner Leo Marasovic and let's us help you build your plan on puirchasing your home. Feel free to contact me if you have any further questions regarding this blog or purchasing your home.