How to Start Saving for a Down Payment
Saving for a down payment is an exciting first step to home ownership. Whether you’re saving for your first home or maybe a vacation property, here are 6 tips and tricks to help you save money for a down payment, understand what solutions work best for you, and how you can maximize your savings and get started on your journey to owning a home.
In Canada, a down payment is required when mortgaging a property. Your down payment must be at least 5% of the homes total purchase price. If a home is more than $500,000 a 5% down payment is required for the first $500,000 and 10% is required for anything the remaining balance. Homes that have less than a 20% down payment are considered a high ratio mortgage and are required to have mortgage default insurance.
Separately, a minimum 20% down payment is required for a 30-year amortization period or for a non-owner occupied home. Don’t worry – You can use our mortgage calculator to understand how much you need to save for a down payment.
Now let’s jump into it.
1. First Home Savings Account (FHSA)
The new First Home Savings Account (FHSA) is a great tool for someone saving for a down payment as a first-time home buyer. The FHSA has the tax advantages of an RRSP and the withdrawal benefits of a TFSA, meaning that you can deduct contributions from your taxes, and you are also not taxed when you withdraw. Canadian residents aged 18 years or older who have not owned a principal residence within the last 4 calendar years can save up to $8,000 a year in the account and can carry over unused contribution room to the following year. As a first-time home buyer you are unable to use an FHSA for a non-owner occupied home. Reach out to a Mainstreet Advisor to open your FHSA and get started on your path to home ownership.
2. The Home Buyers Plan
The Home Buyers Plan (HBP) allows you to access funds from your Registered Retirement Savings Plan (RRSP) to put towards the purchase of your first home. Although this home must be your principal residence, it doesn’t have to be a single-family home, it could be a multi-family home allowing you to rent out a portion of that property to cover expenses. Each person can withdraw up to $35,000 interest free from their own RRSP account to contribute towards the down payment of the home. Funds withdrawn from your RRSP are tax free provided they are paid back within 15 years of the home purchase and repayments must start no more than two years from the withdrawal date.
3. High Interest Savings Account (HISA)
Another great alternative to save for down payment is with a High Interest Savings account (HISA). A HISA is a great way to save with higher interest rates than a regular chequing or savings account. Mainstreet’s HISA has no monthly fee and unlimited deposits!
This account also allows you to jointly save with your partner or spouse and is a great solution for those who have saved the maximum amount in their FHSA or TFSA. At Mainstreet we provide you with the ability to have your HISA be within a FHSA to allow for the tax benefits. To open a HISA book an appointment with one of our advisors or open your account online using Open Anytime.
4. Automate your Savings
One of the best ways to start saving for your house down payment is to set up a scheduled withdrawal plan. You can do this by having a set amount of money come out of your chequing account on a regular basis and go into a savings plan. Whether you decide to set up a Tax-Free Savings Account (TFSA), a Registered Retirement Savings Plan (RRSP), First Home Savings Account (FHSA) or a high interest savings account (HISA). This is a great hands-off approach to take in reaching your goal of saving to buy your home. Understand what is best for you by booking an appointment with one of our advisors.
5. Build a budget
If you’re unsure about how much you can set aside each month to save for a down payment, another option that can help you get started could be creating a budget. Understanding where your income is going each month and what you have left over will make you aware of what your fixed and discretionary expenses are and where you can make adjustments to achieve your savings goals in the time frame you choose. Any extra funds you have left over can go towards your savings goals for a down payment. A Mainstreet advisor can help you create a budget that fits your financial goals.
6. Put aside additional income
Another great option that can help you save money for a down payment for a house is putting away any additional income you may receive throughout the year. This extra income could include your bonus from your job, inheritance, cash gifts, your tax refund, or money received from a side hustle. Putting this money aside means a boost to your savings without impacting your monthly budget.
7. Start Saving for a Down Payment Today
Saving for a down payment is an exciting goal and it can take some planning to help keep you on track. You can reach out to a Mainstreet Advisor to get started or to learn more about saving for a down payment, creating a savings plan or opening an account. Book an appointment here. Interested opening an account online? Use our Open Anytime to get started.