As a first-time homebuyer, you need to come up with a minimum 5% down payment. A down payment is the percentage of the home’s purchase price that you pay upfront before financing the balance. Saving up for a mortgage down payment requires long term planning. Here are some of the tips you can use to save up for a mortgage down payment before applying for a first-time home buyer loan. Call us to get started today!
Reduce Your Debt
You cannot save money if you have to pay it off elsewhere. In addition, first-time home buyer loan lenders may refuse to qualify you for a loan if you have too much debt. Start paying off existing loans and credit card debts. It also goes without saying that you should avoid accumulating more debt.
You can use the snowball method, where you pay off your debts from the smallest to the largest, and continually gain the momentum to kick off all your debts. Alternatively, you can utilize the avalanche method, where you pay off the debt with the largest balance and interest rate first and move slowly towards the lowest amount.
Downsize as Much as Possible
A first-time home buyer loan is a huge investment. It’s important to eliminate as many unnecessary expenses as possible, to prepare for your new living situation. There are several ways to cut back on spending including:
Eliminating or cutting off subscriptions. Sit down and review your Netflix, Disney+, meal kit, gym, journals, and any other paid subscriptions you have and cut off what you don’t need.
Cut back or find cheaper mobile and internet plans.
Reduce your AC and heating expenses.
Eliminate leisurely spending in restaurants, hotels, and travelling.
In short, find cheaper ways of doing things where possible and your savings will reap the benefits.
Put Your Savings in Tax-Free Accounts
Don’t lose your down payment money as you save it. Review your savings account and check if you get taxed for your savings. If yes, find a tax-free account for your down-payment.
Take Advantage of Government Programs
The government has several programs that make it easier for you to afford your down payment and first-time home buyer loan. The most widely used of these programs is the Home Buyer’s Plan (HBP). The HBP allows you to take out up to $35,000 from your registered retirement savings plans (RRSPs) for your down payment without penalty. You can only withdraw as much as you have saved and you will need to pay the amount back into your RRSPs via monthly RRSP contributions over a 15-year period. With the HBP, you are essentially borrowing your own money without interest. This can be an excellent solution for many first-time home buyers. A mortgage broker will help you understand if this is a suitable option for you.
Ask for Assistance from the Experts
A little assistance and financial planning from our team can help you plan for your down payment and secure your first-time home buyer loan. Reach out to On The Mark Mortgages to get started.