One of the most significant costs of purchasing a home is the down payment. A down payment is a percentage of the purchase price that you pay upfront to secure the home. Typically, the larger your down payment, the lower your monthly mortgage payments. Saving for a down payment can be challenging, but with the right strategies, it is possible.
In this article, we will see how much down payment is required for the home purchase and reveal five tips for saving for a down payment on your dream home.
In this article, we will see how much down payment is required for the home purchase and reveal five tips for saving for a down payment on your dream home.
Minimum down payment requirements:
While it is recommended to have at least 20% down to avoid Mortgage Default Insurance, you still can purchase your investment with less than 20% down payment.
So, what down payment should you have then? Here is a break down:
*Example: If the property price is $750,000, the minimum down payment would be $25,000 (5% from first $500,000) + $25,000 (10% from the difference $750,000-$500,000=$250,000) Total downpayment is $50,000.
So, what down payment should you have then? Here is a break down:
- For homes $500,000 or less, a 5% down payment is required;
- For homes $500,000 or less than 1 mil., you'll need to put 5% down for the first $500,000 and 10% for the remaining purchase price;
- And finally homes that are 1 mil. or more require a 20% down payment and are not eligible for mortgage loan insurance.
*Example: If the property price is $750,000, the minimum down payment would be $25,000 (5% from first $500,000) + $25,000 (10% from the difference $750,000-$500,000=$250,000) Total downpayment is $50,000.
How can you save for your down payment?
Set Your Realistic Goals
The first step in saving for a down payment is setting a realistic savings goal. Consider the cost of the home you want to purchase and how much you can realistically save each month. Our mortgage agents recommend aiming for a down payment of at least 20% of the purchase price to avoid insurance fees. Once you have set your savings goal, create a budget that allows you to save consistently each month.
Automate Your Savings
Automating your savings is an effective way to stay on track with your down payment savings goal. Consider setting up an automatic transfer from your checking account to a savings account each month. Some banks offer 2% to 3% savings accounts, and you might also consider investing in GIC’s as one of the safest investments forms. This ensures that you are consistently saving and earning an interest on you saved funds.
Cut Back on Expenses
Cutting back on expenses is an excellent way to free up more money for your down payment savings. Consider cutting back on discretionary spending, such as dining out, entertainment, and travel. You can also reduce your monthly bills by negotiating with service providers, such as your internet, phone, and insurance providers.
Look for Extra Sources of Income
If you are struggling to save enough money for your down payment, consider looking for extra sources of income. By some statistics, 28 per cent of Canadians are now taking on side hustle jobs. You can take on a side hustle, sell items you no longer need, or rent out a spare room in your home. Every little bit helps and can get you closer to your down payment savings goal.
Take Advantage of Down Payment Programs
Did you know, first-time home buyers may qualify for the First Home Savings Account (FHSA). The FHSA is a special savings account designed to help Canadians save for their first home. Those eligible to open FHSA may do so starting April 1, 2023. We are inviting you to learn more about this in our article: First Home Savings Account. Additionally, some other provincial and municipal grants could assist first-time buyers in covering land transfer taxes.
Saving for a down payment on your dream home requires discipline and effort, but it is achievable with the right strategies. Set a realistic savings goal, automate your savings, cut back on expenses, look for extra sources of income, and take advantage of down payment assistance programs. These tips can help you reach your down payment savings goal faster and get you closer to owning your dream home. If you need further guidance or advice on the home buying process, reach out to a mortgage agent who can help you navigate the process and find the best mortgage options for your needs. Book your complimentary appointment today - ikfinancial.com.
IK Financial Mortgage Team operates on behalf of Mortgage Edge. Lic#10680
