One of the hardest things for homebuyers to do is save up enough money for that all-important down payment on a home. As a Hamilton mortgage broker, I’ve always said that it’s best to start saving up well in advance. After all, the bigger the down payment, the lower the mortgage loan and monthly repayments will be. I have some tips to share with you on how to start saving for that down payment.
Have a special savings account
The first thing you should do is open a savings account, especially for the down payment. You should then move a fixed amount to that account each month. To make it easier, you can set up an automatic direct deposit so that you don’t forget. Also, you need to make sure that you don’t touch the savings in that account and commit to it.
Reduce your high-interest rate debts
I’m mainly referring to credit cards, which tend to have the highest interest rates and can really limit how much you are able to save. By paying these off, you free up more money that can be used for your down payment. Start with the credit card that has the highest interest rate and pay it off in full. Once you have done that, close the account for that card. You can then start paying off the next one. You could also do a balance transfer to the card that has the lowest rate.
Start budgeting better
Really take a look at your monthly expenses and try to find ways to either eliminate or lower these. You can then put the money you save from those expenses into your down payment savings fund. There are other things you can do as well, such as forgoing taking a vacation for a year. That will be a significant amount that you can put towards your down payment.
Family can help
A lot of people will turn to relatives or their parents for help when they are buying their first home. You can use gift funds for the downpayment, but make sure you include the gift amounts on the mortgage application and have a letter of proof that the funds are a gift and not a loan to be paid back to family.
Do you pay into a retirement plan or profit-sharing plan at work? Some companies will let their employees borrow funds against those savings to put towards a home purchase. Have a chat with your HR department to see if you have any options to tap into.
Down payment assistance
There are some organizations and government incentives that may help you with your down payment. One of these is the First-Time Home Buyers Incentive, which will offer to pay up to 10% of the home’s purchase price for a down payment to eligible buyers. This will lower the monthly payments and could mean you won’t have to pay for private mortgage insurance if you have a 20% down payment between what you have saved, and what you are eligible for.
Whether you start saving years in advance or not, there are many ways to start saving for your down payment. Some people will get a temporary second job, or you may be able to make a deal with the seller of the home. To look at all of your options and learn more ways to save for your down payment, give our Hamilton mortgage broker team a call today!