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FIRST TIME HOME BUYER STRATEGIES - HOW TO SAVE FOR A DOWN PAYMENT
A down payment may be the only obstacle keeping you from owning your first home. Picture this: you have a well-paying job, you are faithfully clearing off your debts and mortgage rates are ridiculously low in your area.
Raising the required down payment will go a long way towards lowering the mortgage you have to ask from the bank. Typically, a down payment ranges in the thousands and unfortunately, the bank may not be willing to advance you the exact amount you need.
Sounds like a huge challenge, right? Not really! There are strategies you can use to raise the down payment, like saving in advance. Sadly, saving is a little difficult for most people. However, you can do it by following these six tried and tested strategies of saving cash to own your first home.
HOMEBUYER RRSP PLAN
In some parts of the world, the government allows up to 25K worth of RRSP monies, tax-free, to help you purchase your dream home. If you have not had an RRSP plan before, it might be time for you to sign up for a home Buyer RRSP Plan.
Take all the money you have been saving and pass it through an RRSP program for a period of 3 months. That way, you will become eligible for tax refunds due to your contributions, which you can use to pay for your closing charges.
This approach will help you increase the amount of down payment you can make by up to 40 percent. However, this method works best if you are patient enough for a spring purchase. Your tax refund is sent during this time and you can use it to offset some of the costs.
Found money is one of the easiest ways to boost your down payment. Found money can range from employment bonuses to birthdays gifts, to revenue from your favorite investment and even returns from your CPP and EI contributions. It can also be through changing habits and mindset. Here is 100 ways to save money.
It’s almost impossible to miss found money. When it comes, simply stow it away and forget about it until it is needed.
You have probably heard about the latte factor elsewhere, but it is worth mentioning once again. The idea is to spend a little less than you earn, and save as much as you can. The biggest cause of unnecessary spending comes from the lifestyle you have chosen for yourself. If you choose a larger than life kind of lifestyle, there will be very little for you to save. You will have very little or nothing at all for your deposit.
A small change in your usual lifestyle can save you a lot of money. From that gym membership you really don’t get to use to canceling your magazine subscription, to making your own cup of joe right at home, a lifestyle change can fast-track your journey to home ownership. List those things you can live without and redirect all that money to your savings.
A GIFT OR LOAN FROM PARENTS OR A FAMILY MEMBER
If you happen to come from a family that has prepared for this or has some additonal funds or investments, some money from a family member or parent can come in handy. It is never easy being a first-time homeowner anywhere in this world because starter costs can be as high as $400,000 or more.
Help from family or parents can allow you to purchase something you’d be happy living in and in an area you feel safe as opposed to buying a tiny condominium or something in an area you don’t feel safe in.
START BY PRETENDING OWN A HOME AND SAVE MORTGAGE PAYMENTS
If you still live with your folks, start banking the equivalent of your rent money. Better still, find out the amount you would pay for a condominium, mortgage or contribute towards taxes when you decide to find your own home and start saving a similar amount.
It is a good way to raise your down payment and you will get used to making regular payments once you find the perfect condominium or your dream home.
BETTER SAFE THAN SORRY
Start saving for your down payment in a different bank account that you will not be able to access from a cash dispenser. That way, you will not be tempted into making last-minute dip and take out cash for a vacation.
Speak to your lender and find out how best you can invest your savings. Although it sounds like a good idea to invest in stocks because it offers quick returns, you might actually lose all the money. Be a smart future homebuyer, and save your money in a useful investment scheme like the GIC RRSP. You might not enjoy such a high-interest rate, but your money will be safe all the same.
Getting into the habit of saving money for an important project like your first home is not an easy task. Repetition is key and soon you’ll be comfortable with it. After all…it is a necessary step if you are hoping to have a smooth journey towards home ownership. You’re your heart set on owning your very own home, the sooner you start a savings mindset the sooner you will realize your goal of home ownership. A talk with a financial planner could be of great value and it is recommended that you open an account just for your house savings. Some banks earn a bit more interest on your savings or you could open a TFSA (Tax Free Savings Account). You might not even need a mortgage to buy your first home because you might just save enough to your home with cash!