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7 Tips for Saving Up for a Down Payment

7 Tips for Saving Up for a Down Payment

When you purchase your first home, the larger the down payment, the smaller your monthly payments will be. Besides that, if you have a down payment of 20 percent or more, you’ll be able to avoid paying a mortgage insurance premium. It can seem daunting to save enough for a healthy down payment, but there are some solid ways you can achieve that goal.

1. Compare your family’s income to expenses.

To start, compare how much you’re earning to how much you spend. Do you have any money left over at the end of a pay period? It’s time to sit down and do an analysis of how your income gets distributed. Make sure you include all expenditures, not just bills. That means dining out, online purchases and small daily expenses.

Tips for Saving Up for a Down Payment Wallet Vice Grip Image2. Figure out exactly what you spend on each category.

Check your online credit card statement because you’ll see a complete list of every credit card purchase. Some of these have a sorting program built in that groups expenditures by type, such as utilities, car maintenance, dining out, grocery store purchases, etc. 

3. Track your expenses in real time. 

Once you have an accurate picture of your cash flow, it’s time to start tracking how much you spend in real time. There are some excellent (and fun!) tracking apps on the web that do everything for you. Just be sure and enter every expense, no matter how small, to get an accurate picture of what you spend each month. For cash purchases, keep a list and add to it each time you spend any cash.

4. What can you live without?

This is the hard part, and it should include big things and little ones. Look at the data from the work you’ve done on your budget. Is there a little thing that adds up at the end of the month like a $4 latte every weekday? That’s $80 a month saved toward your new home! Big things like cable TV, dining out regularly and weekend trips will also need to be curtailed while you’re in saving mode.

Tips for Saving Up for a Down Payment Credit Cards Image5. Pay off your debts.

It only makes sense to pay off your debts if you’re looking to take on a monthly mortgage payment. You’re working hard to afford a home, but you don’t want to continue living in austerity indefinitely. So pay a little extra on your monthly car payment and get that credit card balance down. Another benefit is that it will help your credit score when you’re ready to buy your new home.

6. Don’t start making plans for how you’re going to spend your tax refund.

When any extra money comes in, it should go directly into your down payment fund. Keep your eyes on the prize!

7. Take advantage of the government Home Buyers Plan (HBP).

If you’ve made a good faith effort to do all of these things and still don’t quite have enough for a down payment, there’s one more option. If you or your spouse is a first-time home buyer, you can borrow up to $25,000 from your RRSP to make a down payment. Remember, however, that this will have to be paid off within 15 years.

As you can see, it takes a real effort to get a handle on spending habits. Of course, it’s well worth the time you take to figure out your finances. Once you have enough money for a down payment and closing costs, the fun begins. You get to start looking for the dream home your family has always wanted!

 

Photo credits: wallet vice, wallet, savings

About The Author

Jeff S.

Proud father and husband. Loves music, Nine Inch Nails, UFC and inbound marketing.

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