Purchasing your first home is a major milestone, but can be challenging and intimidating. It involves so much planning and saving that first-time home buyers often don’t know where to begin. Here are 14 tricks to keep you on track when saving up for your first home.
1. Calculate how much you need to save
First-time home buyers are often stressed when it comes to saving up for their down payment since they don’t know how much exactly they need to save. Doing your research and the necessary calculations before saving up will give you an overview of how much you will realistically have to save and how much you’ll need to borrow. Consider sitting down with a mortgage lender to find out how much of a mortgage you can qualify for. This will help lift some weight off your shoulders and help you avoid making the mistake of over or underestimating the amount of savings needed.
2. Determine your time frame
Once you calculate how much you need to save, it is important to determine your goals of when you’d like to purchase your new home. This will give you a measurable timeline and an easy breakdown of how much you will need to save every day/week/month to stay on schedule with your savings.
3. Prioritize your spending
Do you go out for dinner a few times a week? Do you shop for the latest clothing trends every season? Do you like to take expensive vacations? When saving for anything important, sacrifices to your regular spending habits must be made. If saving for a new home is one of your top priorities, try to identify other areas where you can cut back so you can put more money towards your savings. The best way to identify where you can start saving is to keep a budget. If you haven’t prepared a budget yet, set one up and start getting into the habit of checking and updating it on a regular basis.
4. Be smart with your money and look for cheaper alternatives to do things
Having to save doesn’t necessarily mean you have to cut out all the fun in your life. Here are some examples on how you can continue to go about your daily lives and hobbies on a budget:
- Are you someone who likes to read? Borrow books from the library instead of buying your books. Not only will this help you save money, but it’s also eco-friendlier.
- Do you like to watch movies? If you’re not in an immediate rush to see a new movie in the theatres, wait for it to come out on Netflix or other online movie subscription service. This way, you can save your ticket money and get the most out of your subscription.
- Do you buy branded chips or soda drinks from the grocery store? Try opting for a no-name brand or any other cheaper option. For example, instead of buying a Coca-Cola 6 Pack for $4.28, get the President’s Choice Cola 6 Pack for $3.79. It may be a savings of only 49 cents, but over time, the money adds up and makes a difference.
- Do you buy lunch often? Try packing a lunch instead. Not only will this save you a great amount of money week-over-week, but it’s also a healthier option.
- Do you like to take luxurious vacations? For your next few vacations, try something less expensive or closer to home.
5. Get rid of one car or downgrade your car
Cars can cost a large fraction of your pay cheque, with monthly payment, gas, maintenance, and insurance all weighing in. If you have a partner or own two cars, consider getting rid of one. This can save you thousands of dollars per year. If getting rid of one car isn’t a feasible option, think of moving closer to work to save money on gas or commuting to work through public transit instead. Another option to take into consideration is to sell your car, buy a cheaper second-hand car that uses less gas, and save the difference. You can always upgrade your car again once you’ve secured your new home.
6. Sell belongings that you don’t need
Most of us have stuff lying around in our homes that we haven’t touched for a long time or straight up haven’t used even once. Spend a few days cleaning out your home and gather belongings that you don’t use or no longer need. Chances are, someone else can make great use of it. Sell your belongings online through eBay, Kijiji, or any other buy-and-sell website to make some extra cash for your savings.
7. Save more from work
If you’ve done the calculations from the first two tricks in this list, you should have an idea of how much of your pay cheque you need to save every month. Set up an automatic savings program to prevent yourself from spending more than you should. If you don’t have an automatic savings program set up, here are a few general steps on how to get started:
- First, you need a savings account. If you don’t already have a savings account set up, open one at the bank where you have your chequing account and make sure your chequing and savings accounts are linked.
- If you currently have direct deposit through your employer, the easiest and most effective way to set up your automatic savings program is to have part of your pay cheque directly deposited into your savings account, while the remainder gets deposited into your checking account for regular spending and to cover your bills.
- If you don’t have direct deposit from your employer, set up an automatic transfer from your checking account to your savings account every time you get paid. For example, if you get paid every Thursday, set up an automatic transfer of the amount you’d like to save every Thursday from your chequing account to your savings account.
If you have any questions or need help setting up your automatic savings program, visit any of your bank’s branches for more information.
8. Find a second source of income for yourself
To speed up your savings plan, you may want to consider finding a second source of income to help support your savings in addition to your day job. A second source of income can be anything from a casual freelance to a part-time commission-based job. If you’re unsure of what kinds of freelance opportunities to pursue, a possible option is to consider what skills you have that can be used outside of your workplace. For example, if you work as a mechanic, you may be able to fix your friends’ cars on the weekends. These skills can even be totally unrelated to your day job and more of a side hobby. For example, if you enjoy photography as a hobby, you may consider selling yourself as a freelance photographer who can take professional LinkedIn head shots. Another option is to take a part-time job. This can be a work-from-home opportunity if you have a busy schedule, a commission-based job, or anything in between. If you consider yourself to be a great salesperson, a commission-based job may be a good option to look at.
9. Encourage your spouse to save with you
If you are moving in with your spouse, consider saving up together for your new home. This can make the saving process quicker and more manageable. A great way to save is to set up a joint savings account for each partner to deposit their share of savings into the account on the agreed terms. Another way to save together is to create a budget to track household spending and financial goals. Of course, every couple has different needs so it may be helpful to have a chat with your spouse to find what works best for the both of you.
10. Lower the rent you’re currently paying and save the difference
If you’re currently paying $1,600/month for rent, you may want to think of moving to a place that will only cost you $1,100/month (for example). Although the dwelling may not be as nice, it’s only for the time being. You could then save $500/month and put an extra $6,000 towards your savings in just one year. Another practical option, if possible, is to move back in with your parents or in-laws temporarily which will help save a lot of rent money.
11. Consider a lower entry point into the market and work your way up
One of the biggest mistakes first-time home buyers make is expecting to purchase their dream home right off the bat. Your dream home and neighbourhood is often out of your price range and may simply be unfeasible for your first purchase. Don’t stress about buying the perfect home for your first purchase since buying your first home is rarely a life-long decision, after all. Purchasing in a cheaper neighbourhood will allow you to save up much quicker, which can give you the chance to move to a better home in the future.
12. Use a tax-free savings account
A tax-free savings account can be a great place to start saving your down payment money. Since the money can grow tax-free in this account, you won’t have to pay income tax on the money you earn as it grows. Consult your financial advisor or visit any of your bank’s branches for more information on how to set up your tax-free savings account.
13. Borrow from your RRSP
If you have a RRSP, borrowing from your RRSP can help with your down payment. You can withdraw up to $25,000 from your RRSP to buy your first home. If you don’t have a RRSP, you may want to register for one as this may be a good way to save money and get a tax credit to help reduce your taxes. Be mindful that the program requires you to pay the money back to your RRSP within 15 years. If the money isn’t repaid, it becomes treated as income and you will have to pay tax on the money you withdrew. Check with your financial planner or advisor to see if this option is right for you.
14. See if your city has a first-time home buyers program
From time to time, some cities within Canada have programs that provide interest-free loans to new home buyers as part of their down payment for their first home. These first-time home buyers programs are initiated to make it easier for first-time home buyers to afford a home in an expensive city and to redevelop a part of the city that is struggling. Since these programs usually have very specific requirements, check with your city hall to see if your city has any sort of first-time home buyers program available. In the past, Winnipeg, Manitoba, and Surrey, British Colombia have offered up to $20,000 per couple under these programs. The money is repaid without interest over a set number of years. Visit your city hall for more information.
APM Website Manager