Saving for a first home might seem daunting, but in reality, it’s quite achievable with the right approach.
We checked in with Lisa Bell, Personal Banking Advisor with Cambrian, about the basics of saving for a down payment.
Here’s what we learned.
A down payment for a house is based on a percentage of the purchase price. The higher the price, the higher the down payment.
The minimum down payment in Canada is five per cent for a value of $500,000 or less, and an additional 10 per cent down payment is required on the portion of the purchase price above $500,000.
Typically, a down payment ranges from five to 20 per cent of the purchase price. If a down payment of 20 per cent is available, this will also avoid mortgage default insurance premiums which would otherwise be an additional cost and added to the loan.
“It can all feel overwhelming, but don’t stress,” says Lisa, “there are resources available to help. I always suggest using an affordability calculator, like the one on the Cambrian website. It can give you insight into what your payments will look like, your purchase price, and the minimum down payment needed.”
Down payments can come from cash savings, investments, or, if you’re lucky, a gift from family or friends. Institutions just need to know the source of funds and verify that the money has been in the account for at least 90 days.
As long as there is a clear paper trail, you should be good. Members can keep the money in savings or invest it in a GIC until needed.
The key to tackling big things like saving for a down payment is to break the process down, step by step. Start with these strategies for saving.
“The first step I always suggest is to set a goal, because if you don’t have a goal, there’s nothing to aim for,” says Lisa. “Determine how much you need to save to buy your home.”
To have a goal, it’s very important to have an overall budget. Here’s how to start:
“Juggling different financial priorities can be difficult,” says Lisa, “but if you create a plan, execute it, and understand your cash flow, you’ll know how much you can comfortably save.”
And remember, don’t despair! Saving can be fun, and even easy.
Every paycheque, put away what you can before paying bills and other expenses, without overextending yourself.
The general rule is to aim to put away 25 per cent of your paycheque into savings, but that’s not always realistic. Just do what you can, even if you’re starting with a small amount like $20 a month.
Automating your savings is a game changer.
“Personally, I find savings a challenge without automation,” says Lisa. “It makes things simple: you save while you sleep! Set up automatic contributions to your FHSA, RRSP, or TFSA. It’s an ‘out of sight, out of mind’ strategy, and before you know it, you’ll build up a sizeable amount.”
An FHSA, TFSA, or RRSP are great tools for reaching your savings goals.
A lot of people get discouraged and lose hope, since buying a home can sometimes feel like an insurmountable challenge. But it’s not. Automated savings and paying yourself first truly make a massive difference.
“Every penny counts,” says Lisa. “Investment vehicles like the FHSA, TFSA, and RRSP can speed things up because of benefits like compound interest and tax advantages. Your money grows faster than you think.”
Personal Banking Advisors like Lisa, as well as our Wealth and Financial Advisors, are here to help. Book a meeting today!
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
