Most Canadians find it a challenge to save for the required down payment - when buying first home.
Here are some savings tips for 1st time home buyers
Looking to buy your dream home?
The big challenge for most of Canadian first-time home buyers would be saving money, especially down payment. There are so many great ways to save money to buy that dream home.
Here are some tips, I found very useful:
Affordability
There are few main factors that affect your mortgage affordability - your household income, the property purchase price and the amount of down payment.
A mortgage affordability calculator can help you determine:
· how much down payment
· the maximum property purchase price
Please note: You can get approved for a higher amount than what you can afford
You can use our mortgage calculators to find your number:
Get pre-qualified in minutes:
You can talk to a Licensed Mortgage Broker who can help you understand the complete home buying process and help you pre-qualify with NO COST to you
Set a GOAL as how much money do you need
Do some math as how much money is required (Down Payment + Closing Cost) and divide that number of months. Track this number and ensure you are monitoring the same.
The more time you save, the more money you can save up. And the more money you save, the less your mortgage loan will cost in the long run.
Set up auto debit to stay on track for your savings goal.
Must Prioritize, make a budget and stick to it
Saving is all about prioritizing. Are you willing to say no to that new phone / car or expensive vacation? If saving for your dream home is your top priority then identify the areas where you can cut back to save money. Create a monthly household budget and stick to it.
Pay off the high interest debt first
The first thing that you need to do is pay off the high interest debt (especially credit card). Start with small balances first. Once paid off – you will be able to save the whole interest portion on monthly basis. Secondly, paying off debt will help you qualify for mortgage easily.
If you can’t pay it all – at least start paying as much as you can
Transferring some / all the outstanding balance to a Low-Interest Credit Card can help you save
Increase your income with a second job / a side hustle
If you can add 10 hours/ week in a second job making $16/ hour = that’s an extra $160 per week and saving this can help you save an extra $8,320 in one year.
Start something; you would love doing – driving uber, pets, writing a blog or online tutoring etc.
Max out your TFSA contribution
The TFSA is a great place to park extra money every month. The money will grow tax free as you are not required to pay income tax.
You don’t lose your TFSA contribution room - If you've not deposited anything in your TFSA, you can contribute up to $63,500 (For Yr. 2019 Limit is $6,000)
Max out your RRSP contribution
This can be one of the best ways to save tax and save money towards the down payment as a First time home buyer as you can withdraw as much as $25,000 tax-free under the Home Buyers Plan. You must pay this back over 15 years. So for a couple, it can be up to $50,000 towards down payment.
Note:
Budget 2019 proposes to increase the Home Buyers' Plan withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019.
Govt. supported First Time Home Buyer programs or grants
Govt. of Canada offer programs to help first time home buyers with part of their down payment as an interest free loan. The qualified first time home buyer can buy a home up to 4 time of annual household income.
The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.
With this incentive, Government of Canada provides:
· 5% or 10% for a first-time buyer’s purchase of a newly constructed home
· 5% for a first-time buyer’s purchase of a resale (existing) home
· 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
The incentive is available to first-time homebuyers with qualified annual incomes of $120,000 or less
By obtaining the Incentive, the borrower may not have to save as much of a down payment to be able to afford the payments associated with the mortgage.
Always look for ways to save more money
There can a lot of smart ways to save money as when you get a salary raise, bonus or commissions save that extra money. Even the tax refunds which may not seem much, but it will make a difference.
More in down payment will minimize your loan amount - means you pay less in interest and will benefit from lower monthly payments.
To apply for mortgage online:
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