How to Get a Downpayment for a House in Canada
Updated: Sep 9, 2021
A down payment is a crucial and critical step in the home buying process. Whether it be an investment property or the property you reside in a downpayment is necessary. The down payment percentage varies on multiple factors. Such as location, and your stage in real estate. For example, as a first-time buyer, your down payment is 5% in Ontario, however, as a repeat buyer your down payment percentage will sit at 10%. In addition, depending on how much you put down, you may have to pay mortgage insurance, which is an additional fee on top of your mortgage payments. To avoid the mortgage insurance you have to put 25% down. On average the minimum percentage you have to put is 10%. Always make sure to talk to the builder and a mortgage agent to see exactly how much you have to put down.
Once you understand what percentage you have to pay, add $5000 to that figure, this extra $5000 you add acts as a buffer zone for unexpected costs such as taxes, maintenance and other miscellaneous expenses that come with real estate. Now that you know how much you need, the fun part comes, Saving it!
Here are our top 5 tips to save for a Down Payment
1. Utilize the First Time Home Buyers Tax Credit
The First time Home Buyers' tax credit allows you to put a less percentage down on your first property. The percentage varies by location, however, it ranges from 3-5%. Taking advantage of this tax credit results in having to save a smaller amount of money, which is more manageable and ultimately easier and faster.
2. Set Aside a Fixed Amount Each Month into a Designated Account (TFSA)
Setting aside a fixed amount every month into a designated account is a crucial step in saving money for a down payment. The smart move here is to set the money aside in an account such as the TFSA or Roth IRA where it is tax-free growth. Instead of letting the money just sit in the account, invest it smartly into ETFs and Mutual funds (ie. S&P 500) where you get a consistent and guaranteed return. This way not only are you making more money, your money that you save does not lose value to inflation. And in the end, when you go to take your money out, it is completely non-taxable.
3. Pay Off High-interest Debt
Forms of high-interest debt such as credit cards and other loans prevent your ability to save. The best move is to start paying off the card or loan with the highest interest rate and slowly move on to ones with lower interest. Another smart idea is to transfer the balance of your high-interest card onto the low-interest card. Or for a loan, you may want to try debt consolidation. For more on that click here.
4. Reduce Unnecessary Expenses
When saving money for any goal is crucial to eliminate any unnecessary liabilities and expenses. Things such as ordering food, eating out, multiple car payments, vacations, miscellaneous spending, reckless purchases all result in money wasted and hinder your ability to save. A smart idea is to do a financial audit, see what you truly need, and then act accordingly. Set yourself a monthly expense budget for liabilities and stick to it, do not exceed it, instead start to buy assets such as stocks or bonds, which will give you returns and help you save more money.
5. Leverage Assets
When saving money, having assets can be a lifesaver, as you can leverage them and make money off of them which can help you save. For example, if you have $300,000 of equity in a rental property, you may consider refinancing the property to remove the equity and take the money you need. In addition, you may consider selling part of your stock portfolio, to contribute to your down payment. To learn about refinancing and leveraging assets click here.
In conclusion, a Down Payment is a crucial, vital, and necessary step when purchasing a property of any kind, to ensure to save your money wisely and understand what benefits you can get and use them appropriately. To speak with an expert in the mortgage field, and learn more about possibilities, click here for a free consultation!
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