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It’s never easy being a first-time home buyer, but it’s especially hard in a city like Toronto, where prices are high and competition for homes is fierce. One of the biggest challenges is saving the downpayment: you’ll need at least 5 % of the purchase price, plus closing costs in order to qualify for a mortgage (and if you’re buying a property that’s over 1 million dollars, you’ll need to save 20%).

We’ve put together some do’s and don’ts to help you finance your journey to buying your first home. 

Related: The Lowdown on Downpayments for First Time Buyers

Saving a Downpayment Do’s

Use Transit, Bike, Walk Whenever Possible

Thinking of buying a car to avoid all those Uber charges? Toronto is such a walkable/bikeable/transitable city…you might just want to avoid a car altogether. Besides helping the environment, putting off buying a car can save you a lot money that you can put towards your downpayment. No car means no insurance, gas and maintenance costs too…help the earth and your pocketbook too!

Live at Home For As Long as You Can

One of the best ways to save money (if the option is available to you) is to live at home for as long as possible. While we aren’t suggesting your parents should let you live at home rent-free, you’ll certainly be paying less than you would be living on your own, and you’ll be sharing grocery money.

Vision-Board Your Goal

Nobody likes a budget, so think of planning out your spending – and your savings – as a means to achieving your goal of homeownership instead. Consider creating a vision board, detailing the kind of home you hope to buy, and the kind of life you’ll create in it. New to vision-boarding? Check out these vision boards for inspiration!

Contribute to Your RRSP, Stat

As a first-time buyer, one of the most important downpayment savings vehicles in Canada is the RRSP, or Registered Retirement Savings Program. The First-time Homebuyer Program allows you to borrow up to $35K from your RRSP tax-free. While you will have to gradually repay it to your RRSP (which will eventually fund your retirement), it can substantially increase the size of your downpayment. For example: If you’re being taxed at a 30% tax-rate, for every $1,000 you contribute, you’ll get $300 back when you file your income taxes…which you can then add to your RRSP. You can read more about the First-time Homebuyer Plan here.

Maximize Your TFSA Every Year (after your max-out your RRSP)

In Canada, a TFSA or tax-free saving account is a government savings program that helps you avoid paying tax on your investment savings. The annual contribution limit for 2019/2020 is $6,000. By maxing out contributions to this account you will be able to propel your savings even further. You can read more about TFSA‘s here.

Saving a Downpayment: The Don’ts

Use Payday Loans or Take Cash Advances

Businesses that offer “fast loans” with “instant approval” or “no credit check required” should throw up all sorts of warning signs for money savvy savers. These loans offer fast cash but come with extremely high interest rates that can cause an initial small loan to balloon into debt that could take years to pay off and financially cripple you. If you ever use need to use payday loans for an advance on your next pay, make sure that you’re able to pay it off fully when you get paid….but do everything you can to avoid using them. Also: never rely on fast loans for any recurring costs such as rent, groceries or bills as these loans are unsuited for these purposes. (You can read more about payday loans here)

Invest in Get-Rich Quick Schemes

When something is too good to be true, it usually is… and if there really was some magic money-making technique, why would someone online want to share it? Make sure to always think twice and double check information before giving out any financial information. Getting sucked-in by a scam is the fastest way to lose that downpayment you worked so hard to save. Here’s a great article to help you spot and avoid scams. Also: don’t go to one those Get Rich Quick Real Estate seminars (also known as “wholesaling real estate” – we tell you all about those in this blog.

Overspend on Credit Cards

Credit cards can be great tools for future home buyers as they are one of the easiest ways to build credit and accumulate points/get cashback rewards, but they have to be used carefully in order to be able to reap those rewards without falling into financial turmoil. When using credit cards, it’s important to pay off your balance every month, in order to avoid interest charges. Don’t charge that $2,500 trip on your card unless you’ve earmarked enough money to be able to pay your bill when it arrives at the end of the month. It’s ok to use credit cards responsibly – but it’s easy to get sucked into overspending, paying a ton of interest and derailing your home buying goal.

Buy a New Car

If you need a new set of wheels (and walking/biking/commuting isn’t an option), avoid purchasing NEW as it is,(unlike a home), a rapidly depreciating asset. New cars lose 10% of their value within the first month and while they are a nice luxury, the depreciation expense of a new car makes it far more expensive than a used car. Instead of purchasing brand new off the lot, look for lightly used cars of the same model. This can help save a lot of money while resulting in a very similar car (where someone else has already taken the biggest chunk of the depreciation for you). 

Spend on Unecessary Travel and Discretionary Expenses

If you’ve got your heart set on owning a home, it’s time to make some sacrifices. Now’s not the time to go on a big expensive trip or buy those front-row sports tickets. While it’s important to still have a life, every dollar you put towards your downpayment counts. When you find yourself about to indulge, ask yourself: do I want this ($100 bottle of wine/gym membership that I probably won’t use/newest version of the iPhone) more than a home of my own? Then decide.

As you save your downpayment, it’s never too soon to start educating yourself about the process of buying your first home in Toronto. Check out our First Time Buyer Guide here.

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