So, you want to buy a house. That’s fantastic. You’ve got your credit checked and you’ve been pre-approved (or you haven’t gotten that far). Next step on the list is to save up a down payment, which is probably one of the hardest steps on the list. In Ontario, the minimum required down payment by CMHC (so you can get an insured loan), is 5%. If you are purchasing a home over $500,000, your down payment percentage goes up. How long will it take for you to save a down payment?
Start by checking what assets you already have
Did you know that you can use the money in your RRSP as a down payment if you are a first-time homebuyer? Under the Home Buyer’s Plan (HBP), you can withdraw up to $25,000 per person (so your partner who may be buying the home with you can also withdraw from their own RRSP). You then have 15 years to repay your withdrawal amount or you will have to pay income tax on the amount taken. This option has definitely helped many first-time homebuyers realize their home ownership dreams.
You may also have other assets that you can sell or withdraw from for your down payment, so it is best to consider these first before starting to pinch your pennies.
Make a plan
Once you’ve figured out 5% of your future home’s cost, plus closing costs, which are approximately 1-2% of your total purchase price, you’ll know the amount you need to save. For example, if your future home is going to cost $450,000, you’ll need to save $22,500 for the down payment, plus $9,000 for closing costs. To be safe, an average of $31,000 is needed to buy your first home. Decide on two things:
1) How long do I want it to take before I buy a home?
2) How much can and will I save each month?
Both factors are important, so you need to decide what you are willing to put in the bank account each month to save and get your length of time, or if you are motivated, you could choose a length of time and force yourself to save that amount each month. Many prospective homebuyers get second jobs to help in the saving of their down payment.
Let’s take for example that $450,000 home. If you are living in a situation where you don’t pay rent, or you have a big disposable income, you could technically save $1000 a month for a down payment. That would take you approximately 31 months to save. If you have more time, you could try saving $10 a day and putting it into some sort of high-yield investment.
The time it takes to save a down payment is up to you and how motivated you are to buy a home in Markham. Let me know how I can help.