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Top Money-Saving Strategies For Your Down Payment

Buying a home for the first time has never been easy, but it's become even more difficult the last 5 years with the Niagara Region's housing prices climbing to double or even more. Coming up with a downpayment is among the most challenging tasks in getting your first home: you'll require at the very minimum 5% of the purchase cost plus closing costs to be eligible for a mortgage.

What to Do? We've put together a list of some possibly obvious, yet still helpful tips to help those potentially frustrated first time home buyers here in Niagara.

Don't just budget, plan ahead

Instead of simply making a budget, create a spending plan BEFORE you have the money in your bank. Budgets are often retroactively tracked, looking back at what you spent isn't usually the best approach to saving for where you're heading. It's like driving a car while only looking in the rearview mirror! By planning out where your money is going to go before you have it, you'll be much more excited to see money going in the right places (including that savings pot) as well as not spending down payment money when you don't need to.

Envision Your Home & Life

Make what's called a vision board. A physical piece of paper that has images of the home you'd like and plan on living in one day. Put this somewhere you can see it regularly to remind yourself of where you're heading and why you're making the sacrifices you are to get there.

Contribute to you RRSP's

The RRSP, also known as Registered Retirement Savings Program, is among Canada's most significant downpayment savings tools for first-time home buyers. The First-Time Homebuyer plan enables you to draw up to $35,000 from the RRSP tax-free. Although you will continue to slowly refund it to your RRSP (which will ultimately support your retirement), this can significantly boost the amount of your downpayment.

Increase your TFSA contribution each year

A tax-free saving account, often known as a TFSA, is a government savings initiative that allows you to save taxes on your investment funds. For 2019/2020, the yearly contribution maximum was $6,000. By contributing to the fullest extent possible, you will be able to boost your investments even further.

Make Use of Public Transportation

Are you considering owning a car to escape all of those Uber costs? While the Niagara Region's public transit is far from perfect it is good enough to allow most with ambitions of serious savings goals to survive without a vehicle. Aside from protecting the planet, deferring the purchase of a vehicle can allow you to pocket a significant amount of cash which you can put towards your downpayment. By not having a car, you won't have to pay for the car upfront ($5,000 to $45,000), insurance ($150-$400 per month), gas ($50-$400 per month), registration fees, or upkeep ($100 minimum). Take all that and stick in your RRSP or TFSA and start finding yourself a mortgage broker!

Stay at Home

Living at home whenever feasible is among the most acceptable methods to save serious money (if such an option is accessible to you). While we don't recommend that your parents allow you to stay at home rent-free, hopefully you'll be spending less than you do if you're living on your own. Make sure if this is the case and your parents are generous enough to have you, that your no slouch, mooching off your mum's cooking, cleaning, and laundry. And be sure that you're actually SAVING money for that down payment instead of blowing through it in other areas.

Work Hard!

It takes hard work and determination to accomplish big goals; saving for your first home's downpayment is a HUGE goal and it's going to take a lot of hard work and concentration. Do you best to secure the best paying job you can, do the grind and pick up extra shifts and track your savings progress regularly to stay motivated. Do a great job AT your job to rise to the top and be the best at what you do! Once you're in the real estate market, you'll be glad you did!

Top things NOT to do when saving for your downpayment?

Do not use Payday Loans

Companies that advertise "quick loans" with "immediate approval" and "no credit history necessary" should raise red flags for prudent savers. These are not savings friends! These loans provide quick cash but have incredibly insane interest rates, leading a modest loan to inflate into debts that might take several years to repay and will in fact really hurt your mortgage approval chances. Furthermore, fast loans should never be used to cover regular expenses like rent, supplies, or bills because they are unsuitable for these reasons.

If you NEED to buy a car, pay CASH

Please please please avoid buying yourself a new car if you have goals of saving for a down payment. Unlike real estate, cars are almost never a "good investment". New vehicles literally lose 10% of their worth during the first 30 days! If you need to make a vehicle purchase and you're trying to get to that down payment goal, buy something you can afford, and by afford, I mean something that you don't need any sort of loan for. That's right, cash in the bank. Car loans are one of the biggest killers to mortgage approvals. They are a huge debt to your name. By buying something you can pay cash for you accomplish 2 MASSIVE things at once. First, you limit the expenditure on the vehicle itself leaving more money for your downpayment. And secondly, you remain loan free allowing you be approved for more when the time comes to house shop!

Avoid credit card overspending

While credit cards are excellent tools for potential home buyers to develop credit and get points/cash back incentives, they must be used wisely to enjoy those benefits without sliding into financial trouble. It's easy to spend money with a tap or a swipe or online, then at the end of the month there's a surprising amount spent on chicken tenders and very little to put towards your savings goals for your down payment. To prevent interest payments, it is critical to clear off the credit card amount EVERY SINGLE MONTH. Anyone these days can get a credit card, but beware of the convenience they offer and be sure to use it to build credit not high interest loans!

Avoid needless travel and extraneous expenses

This all comes a bit easier to metabolize in the wake of a global pandemic but it still stands true and should be said... if you're determined to purchase a home, you'll have to make some compromises. Now may not be the time to make a significant, costly trip or get front-row tickets to events. While enjoying life is essential, every penny you invest for your downpayment matters. When you're ready to overindulge, ask yourself, "Do I need this $500 fancy trip as much as a house of my own?" Then make a decision.

It is not too early to start learning about the process of purchasing your first home in Niagara while you save for your downpayment.


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