First-Time Homebuyer? Here’s How to Save for a Down Payment

Saving for a down payment on a home can seem like a daunting task, but with a strategic approach, you can make it manageable. Here are some steps you can take to save for a down payment:

  1. Determine the Amount You Need
  • Minimum Down Payment Requirements:
    • For homes under $500,000, the minimum down payment is 5% of the purchase price.
    • For homes priced between $500,000 and $1,499,999, the minimum down payment is 5% on the first $500,000 and 10% on the portion over $500,000.
    • For homes $1,500,000 and over, the minimum down payment is 20% of the purchase price.
  • Goal Setting: Set a realistic target based on the price of the home you’re interested in. Consider also including closing costs and other expenses.
  1. Open a Tax-Free Savings Account (TFSA)
  • The TFSA allows you to save and invest without paying tax on the interest or capital gains. The First Home Savings Account (FHSA) is a tax-free savings account that allows you to contribute up to $8,000 per year, up to a lifetime limit of $40,000, for your first home. You can carry forward up to a maximum of $8,000 of unused FHSA participation room at the end of the year to use in the following year. If you haven’t contributed in previous years, you can also catch up on unused contribution room.
  • The TFSA is ideal for saving for a down payment because it offers flexibility and tax benefits.
  1. Use the Home Buyers’ Plan (HBP)
  • The HBP allows first-time homebuyers to withdraw up to $60,000 from their RRSP (Registered Retirement Savings Plan) to put toward their down payment. If you’re buying with a partner, they can also withdraw $60,000 from their RRSP, for a total of $120,000.
  • You must repay the amount you withdraw to your RRSP over 15 years. This is a great option to boost your savings, especially if you’ve been contributing to your RRSP already.
  1. Set a Budget and Track Expenses
  • Cut Unnecessary Spending: Review your monthly spending and eliminate or reduce discretionary expenses (e.g., dining out, subscriptions, and entertainment).
  • Create a Savings Plan: Set a specific savings goal each month and stick to it. Try to automate your savings by setting up automatic transfers into your down payment fund.
  1. Consider a Down Payment Assistance Program
  • Ontario offers various programs for first-time homebuyers, such as the First-Time Home Buyer Incentive and the Land Transfer Tax Refund (up to $4,000) for eligible first-time buyers.
  • Check your eligibility for these programs to reduce the amount you need to save.
  1. Use High-Interest Savings Accounts or Investment Options
  • High-Interest Savings Accounts (HISAs): Look for savings accounts with competitive interest rates to help grow your savings faster.
  • Low-Risk Investments: If you have a longer time horizon, you might consider conservative investments like GICs (Guaranteed Investment Certificates) or bonds that can offer better returns than a traditional savings account.
  1. Consider a Joint Purchase
  • If possible, consider pooling resources with a family member or partner to buy a home together, which would allow for a larger combined down payment.
  1. Be Patient and Stay Disciplined
  • Saving for a down payment takes time, but with discipline and a clear plan, you can reach your goal. Regularly review your progress and adjust your budget or savings plan as needed.

Although not easy, especially in today’s market, following these steps and being diligent about your savings, you can work towards having enough for a down payment on a home.

If you have questions about getting started or need guidance, don’t hesitate to reach out. I am here to help.

Menu