Are you looking to buy your first home? We know that this decision represents a monumental stage in your life. We also know it can be a big job to build yourself up to the idea of saving and sourcing information in regards to your down payment. For this reason, we've drafted up a few down payment basics to help you.
Making a Minimum Downpayment
A minimum down payment is a minimal amount you must put down on a home purchase in order to get a mortgage. In Canada, this minimum is 5% of the overall cost of the home $500,000 or less. If your home's purchase price is more, it will be 5% for the first $500,000, with a 10% down payment required on the remaining balance. For example, if a home costs $700,000, you'll be paying 10% on the remaining $200,000.
Benefits of Being a First Time Home Buyer
There are many aspects of being a first-time buyer that give you an advantage. Because any home purchase is good for the housing market (even if it's your first one), there are programs available to help you with that process.
The First-Time Home Buyers' Tax Credit
In some cases, first-time homebuyers can get a non-refundable tax credit after qualifying for a home. This is calculated by taking the lowest personal income tax rate for the year and multiplying it by $5000. Wth current rates, this generally works out to a rebate of $750 and will help you recover additional expenses such as closing costs and land transfer taxes.
Home Buyer’s Plan
The Home Buyers' Plan is a government issued plan that allows you to borrow up to $25,000 tax-free from your RRSPs. In order to qualify for this, you cannot have owned a home in the last 5 years. The great part about this is you have up to 15 years to pay back your RRSP loan.
Having a mortgage pre-approval when house hunting is a huge benefit because it makes you look like a serious buyer. The first place you'll want to check when looking for mortgage pre-approval is with your current bank, but also consider exploring a mortgage broker to find the best rate.
Tips for Saving for Your Down Payment
Saving for your first home may require some ambition, but it's definitely worth it! Also, strategizing ways to save for the home of your dreams doesn't mean you have to cut back on everything. Choose what works best for you and go from there! Here are a few suggestions to help get you started.
1. Pay Off Any Debt
It’s better to start with a clean slate when making a new investment. Your first step should be paying off any credit card or student debt. For you to qualify for a mortgage and get the best rate, the less consumer debt you have, the better.
2. Choose your Priorities
If saving for a home is a huge priority, then you need to make it your number one goal. Unless it's on necessities, every time you're about to spend, ask yourself "Is this more of a priority than buying a home?".
For example, you can start small by asking yourself if you really need that double double on the way to work in the morning. Or, on a larger scale, if you live close to work or have access to transit, do you really need to be driving? The average annual cost of owning a vehicle here in Alberta can reach upwards of $9000 per year. Imagine taking that money and putting it towards the cost of a new home.
It’s simple to make cutbacks with the right frame of mind and keeping your goal in perspective.
4. Make A Budget
Have you heard of the pay yourself first concept? Essentially, the idea is to put away 10% of your income each payday. This way, you are making it a priority to save before you spend on anything else. To cut your bills, consider a new cell phone provider or shopping at a less pricey supermarket. Check out your bank statements to see where you really spend your money. From there, you can lay out a budget.
If you're hoping to put a down payment on a home in the near future, be sure to take the above tips into consideration. Not only will they make the down payment process easier overall, but they're sure to help you purchase your dream home faster than you imagined.