Save For Your Next Down Payment With These 5 Simple Tips
Whether you are a first-time homebuyer or a new investor looking to buy an investment property for your real estate portfolio, there is one thing you will need to prepare in order to get started – a down payment.
Saving up for a down payment is often one of the first major barriers you need to overcome when looking to get into the real estate market. After all, most people do not casually have $40,000 laying around in order to make a 20% payment on a $200,000 home when they are first starting out.
So, how do you collect the required wealth to make the purchase? To help you start saving for your next down payment, here are five easy tricks you can use.
Of course, if you want to invest faster, click the link below to book a free strategy call to discuss drawing your next down payment from your existing investments.
Establish Your Budget
Before you begin saving for anything, you need to understand how much of your income needs to be budgeted towards your current living expenses. This should include any rent, car payments, insurance, and grocery costs alongside any other necessary expenses. This will allow you to build a clear understanding of how much of your current income is already spoken for.
In Canada, the average monthly cost of living is approximately $2600. Of course, depending on how you budget and the amount you spend on certain areas of your life, you may be able to lower these costs.
Determine Room for Savings
Once you have determined you monthly budget, it is time to begin finding room for you to save money. An obvious place to start is by saving any income that is not already allocated to your monthly budget. While you may naturally want to spend some of this on leisure and luxuries, limiting your spending will increase your savings potential and allow you to save up faster.
You also may be able to find room for savings within your existing living expenses. Whether it is through price-matching your groceries to cut down on costs, walking whenever possible to save money on gas and transport, or bundling your insurance plans to make lower monthly payments, cutting down on your personal living expenses is a great way to create more room for savings.
Fully Utilize Your Savings Plans
Many people who are trying to save up for a down payment make the mistake of just allowing their money to sit idly in a savings account doing nothing. These accounts may generate a small amount of interest, but there are much more effective means of utilising a savings plan than essentially putting your cash into storage.
RRSP
One of the options Canadians have for building their savings for a down payment on a first home is through their RRSP. Not only does an RRSP allow you to save money for retirement and earn money through the interest it generates, but you can also borrow from it to buy a home through the Home Buyer’s Plan.
While this plan is exclusive to first time buyers, it is a great option that allows you to borrow up to $35,000 from the plan to make a down payment on a home. This withdrawal is interest-free and remains tax-free as long as you repay it within a 15-year period. This can be doubled if both you and a spouse borrow $35,000 from your accounts to add up to a total of $70,000 towards a down payment.
TFSA
Another high-powered option that Canadians can use to save for their down payment is a TFSA. Not only are your withdrawals always tax-free, but there are never any penalties for pulling money out of the account. TFSA’s area also more easily used as they are not restricted to first-time home buyers using their funds for a down payment.
In fact, typically it is possible to put more money into your TFSA than your RRSP meaning that you can save for a down payment in the account much faster and earn interest on your savings at a more significant rate. However, it is important that you properly invest the funds within your TFSA to maximize your potential yield.
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Start a Side-Hustle
With the cost of living as high as it currently is, another popular method Canadians use to save up for their next down payment is by starting a side hustle. Whether it is delivering food for a service such as DoorDash, Uber Eats or Skip the Dishes, selling in-demand products on websites such as Amazon or Etsy, or any other means of generating a secondary income source, a side hustle can help you enjoy a taste of financial freedom or put you one step closer to buying your next property.
Utilize Other Investments
Finally, one option that is very popular amongst investors is utilizing your existing investments to save up more-effectively for a down payment on your next investment property. Some of the most popular methods include:
Stock Trading
Stock trading is a popular option among investors who are able to keep a close eye on the market. Skilled traders often see massive returns on their investments very quickly. However, if you are not careful you may also lose money at an equally alarming rate, so be sure to trade wisely.
House Hacking & Roommates
If you already own your own home, one of the method you can use to earn additional income in order to buy more real estate is through house hacking. By taking a portion of your principal residence and renting it out to someone, you can earn income from your home and cut down on your living expenses by using the rent to pay for things such as your mortgage and insurance.
Refinancing Existing Properties
Another option that you can use if you already own property is refinancing. By refinancing your existing properties and drawing on the equity you have already built. It can be possible to pull out most or all of the down payment you need all at once strictly using your previous investments.
Once You Are Ready
Once you have your down payment prepared and are ready to buy, let us help you. At LendCity, our agents are dedicated to ensuring you get the best pre-approvals for your next mortgage as possible. That means getting you the lowest available rates from the best available lender. To get started today, visit us online at LendCity.ca or give us a call at 519-960-0370. Alternatively, click the link below to book a free strategy call with our team today.