If you’re like most first-time condo buyers, you’re probably going to need help from a mortgage lender to purchase your unit. And, that means you’ll need to save up for a down payment to cover a small percentage of the purchase. With the conventional down payment being 20% and the minimum requirement at 5%, this initial payment can be quite a significant amount to save up for. So how do you come up with your down payment so you can purchase within the next year? Here are 7 things you can start today to help you save for your down payment faster.
Use Your RRSP
If you’re a first-time homebuyer, you can use the Canadian government’s Home Buyers Plan to withdraw up to $25,000 tax-free from your RRSP savings to use towards your down payment. What’s the catch? Beginning the second year after you withdraw the funds, you’ll be required to start paying back a percentage of that amount into your RRSP each year. Generally, you’ll have up to 15 years in total to repay the amount that you removed. If this option is available to you, it’s one of the easiest ways to give your down payment the boost it needs so you can purchase a condo, or to even avoid CMHC mortgage insurance rates.
Save the Extras
Any extra income you receive throughout the year should also go straight into your down payment savings account. This includes any yearly work bonuses, employment raises, and tax refunds. These lump sums can quickly add up over time and give your stash the push it needs to reach your condo buying goals sooner.
Set Up Automatic Payments
To build up equity fast, you need to be disciplined with your savings. The best way to do this is to set up a high interest savings account and create automatic payments that deduct at least 10% of your income into the account per month. This will help lock down your savings and ensure the money doesn’t get spent on other things. Best of all, you’ll barely notice the deduction as it will come out of your account well before you can touch the money.
Get A Second Job
If you’re close to having enough accumulated for your down payment but are struggling to reach the finish line, a second job can give you the push you need. By taking on an extra shift or two a week or trying your hand at freelancing, you can quickly obtain the remaining funds you need to save for your down payment.
Downsize Your Lifestyle
That all-inclusive trip you’ve been considering, or your frequent spontaneous shopping sprees won’t help you reach your goal any faster. The reality is that important purchases like a condo require some sacrifice. If you’re serious about purchasing, you’ll need to downsize your lifestyle and find ways to cut out some of the excess spending. You can come up with your down payment much sooner if you try alternative means, like a stay-cation instead this year, or budgeting for your weekly groceries and cutting out any expensive services that you really can live without, like your pay-per-view account or gym membership.
Sell Some Of Your Belongings
It’s likely you have a number of belongings that you’ve acquired through the years that you won’t be taking with you to your new condo. But keep in mind that many items can easily be sold off for some extra cash. By selling your items online or through a garage sale, you can make some additional money that can go right towards your down payment. Remember, every little bit counts!
Ask For Help From Family
In a recent Financial Post article, realtor Tom Storey from Royal LePage mentions that about 75% of his clients get help from their parents who are in the process of downsizing. So don’t feel any shame in asking family to assist you with some of your down payment. Plus, it can be a more favourable alternative than taking out money on a line of credit that you will have to pay a hefty amount of interest on. Just keep in mind that there are some rules that may come along with a gifted down payment that you should be aware of first.
If you are receiving help for your down payment, many lenders stipulate that the source of those funds must come from an immediate relative, and the funds must be considered a ‘genuine gift’ that will never have to be repaid. The lender may also request financial records to confirm the funds, along with a signature from the family member. Every lender will have different requirements and some may not accept gifted payments at all, so it’s worth talking to a mortgage advisor first to help you navigate through this process.
Saving for your down payment can be done much faster if you're willing to make a few sacrifices and explore all of the options that are available to you. To learn more about ways to get into your dream condo faster, our financial advisors can help. Get the professional advice you need by scheduling an appointment with us today!