7 Steps to a Bigger Down Payment

Cliff Rego
Published on January 8, 2016

7 Steps to a Bigger Down Payment

With the average home price in Cambridge, Kitchener, Waterloo and Guelph ranging between around $310,000 (Cambridge) to $370,000 (Guelph), buying property in Waterloo-Wellington is definitely a much more affordable proposition than buying in Toronto – and a winning proposition given the economic growth and investment in our region.

Still, even a $200,000 condo is a significant purchase in your life – one that warrants financial preparation. And while it’s possible to purchase a home with as little as 5% down, there are significant financial benefits to making a down payment of 20% or more:

  • You’re ongoing monthly mortgage payments will be lower.
  • With more money down, you’ll pay less interest to the bank and put more money in your pocket in the way of home equity (which you can then use to build MORE equity – ask us how).
  • You’ll avoid the CMHC mortgage insurance premium, which will save you thousands of dollars in lost equity.

 

So, there are clear benefits to purchasing a home with a substantial down payment – but how do you save for it? Here are 7 steps to a bigger down payment (and a more prosperous future):

1. Prioritize

Home ownership is rewarding in many ways – but it takes discipline. So, you might as well become disciplined with your finances NOW so that the added costs that come with home ownership will seem like “no big deal.”

Do you eat at restaurants often? Drink Grande Americanos at Starbucks daily? Go on expensive vacations? Always need the latest gadgets? Drive a brand new car? If saving for a down payment is a priority for you, you may need to cut back in one or more areas of your life. Sometimes even a small concession can yield big results over a period of time. Make a budget and stick to it.

2. Clear the credit card debt 

Credit cards typically carry the highest interest charges. So, for home buyers with credit card debt, making monthly interest payments on the debt can make setting aside funds for a down payment difficult. Clearing any credit card debts will enable you to increase your saving portion and reduce the amount of time it takes to make the down payment.

3. Get rid of a car

Leased or financed, even an entry-level car can easily run you $500-600 per month when you factor in car insurance, gas and maintenance. If you can get to work using transit (which will be easier in Waterloo Region with the new LRT), then do it. If you and your partner have two cars and can get away with one, then think about selling one. If you can save $500/month, you’ll be well on your way to a down payment (or at least paying off those credit card debts in Step 2).

4. Save more money automatically

“Out of sight, out of mind” should be your mantra when putting money away from your pay checks. Your bank will likely be able to set up an auto-transfer from your checking account to a savings account. You’d be surprised at how much you won’t miss $200/month if you don’t have the chance to spend it.

5. Find cheaper alternatives

Buy coffee every morning? Make your own at home.
Go out to watch movies (and eat $10 popcorn)? Subscribe to Netflix and buy some Jiffy Pop.
Have an expensive gym membership you never use? Go for a run, do some bodyweight exercises.
Take expensive vacations? Take some day trips here and there.
Buy new music? Download Songza or listen to the radio.

These and other expenditures are silent financial killers. See where you can cut back or substitute for less expensive options where possible.

6. Get a Tax Free Savings Account

Remember that savings account we mentioned in Step 4? Make it a TFSA, which allows you to earn interest without being taxed. It’s a small measure, but every little bit helps.

7. Leverage your RRSP 

If you are a first-time homebuyer, you can borrow from your RRSP when making a down payment – up to $25,000 worth – you just need to pay it back with 15 years. Don’t have an RRSP? Consider setting one up as a way to save for your down payment – and use the resulting tax rebates to, you guessed it, use for your down payment.

BONUS Step: Talk to your Realtor

Your Realtor understands the real estate market, the home buying process, all the costs associated with buying and maintaining a home and any incentive programs available to you in your area. One conversation can make your home buying process that much easier – no matter where you’re at.

7 Steps to a Bigger Down Payment
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