Ways to Save a Down Payment

by Heather McDowell on 30 May 2023

There is a multitude of ways to save for a home, but Canadian Real Estate Wealth has put together a list of the crème de la crème; the shortest distance between where you are and crossing the threshold into your new all-yours home, be that a detached, two-story, modular, or condominium. 

Although we say these fund preservation tips are for a future property purchase, these techniques can also prove useful for squirrelling away funds for whatever your big next chapter entails—a new ride, some fun in the sun, paying off your debts, or saving for your retirement. 

Many people keep using these techniques once they have achieved their first benchmark as a general and ongoing practice to help them reach their overall financial goals, as well. 

Success or failure depends entirely on how diligent you are in accomplishing your financial goals. Here’s our best advice (your wallet will thank us, even if your dining-out appetite doesn’t)!

Cutback Isn’t a Bad Word

Saving for something important—like a home—is all about prioritizing. 

Although it may sound counterintuitive, determining what is paramount and what is superfluous is the first step to financial freedom. 

Are you quick to hit the drive-thru or get a takeaway? Do you enjoy a posh meal and exquisite ambiance? Do you splurge on family fun in the sun every year? Do you buy all the latest tech and drive brand-new cars? Or are you willing to streamline those expenditures and tuck away the value of each of them into the house fund?

It’s your call. Which is more important?

paying house down payment

Let’s think about this another way; if you have one dollar, will it go to the morning cup of coffee, the latest iPhone, or global jet setting? 

For most of us, funds are not limitless, so we must make decisions about what will feel good today (like that double mocha latte) or what is worth the sacrifice. Ultimately, it’s a pain-for-gain situation.

If saving for a home is your raison d’être, then pinpoint other areas where, to borrow the Bank of Canada’s phrase, quantitative tightening can help you maximize the money you put in the piggy bank. 

The tried, tested, and proven method for finding opportunities to cut back is still to make a budget. If you haven’t put together a budget yet, that is probably the best place to begin.

It's All About the Set-up

Once you’ve established your priorities, consider setting up separate bank accounts for daily banking: one for incidentals such as major car repairs and one for savings.

Deciding what amount you can reasonably afford to put into these accounts will allow you to think more strategically about how you spend your hard-earned dollars.

While we are on the subject of hard-earned dollars, instead of determining an item’s worth by how much you want or need it, consider flipping the script. Or at least adding the how many hours you would have to work, haircuts you would have to do, houses you would have to sell, lessons you would have to give—whatever your profession is—how many more units would you have to output in order to afford that one item. 

Then ask yourself this crucial question: Is it still worth it?


When It Comes to Saving, Credit is a Bad Word

Money is better saved when it’s put into your savings account. 

Although these accounts don’t pay the interest they may have in years past, they still pay infinitely better than if you’re paying out a lot of interest to someone else, say a credit card company. 

After creating a budget, which is really ground zero for saving, the next logical step is to pay off all your debts. If that seems daunting or you’re not sure where to begin, here are some suggestions. 

Debt is a Four-Letter Word

Start with your smallest high-interest debt and pay it off. If you cannot do this all at once, pay as much as possible but the minimum payment. 

The benefit of this is two-fold; you will lower the total debt amount you’re carrying, but you will also free up space on your total debt service. 

A note about TDSR: A total debt service ratio is a percentage that shows the relationship between the gross income required to cover all other debts and loans, in addition to the cost of servicing loans. 

To put it another way, based on current income and credit, an individual can carry a total debt of $500,000. This is for all debt, including mortgages, credit cards, car loans, etc. However, with $200,000 in student loan debt, another $60,000 in the form of a car loan, and $15,000 in credit card debt, they really only have $225,000 of space available for any sort of loan.

Turning our minds back to debt repayment: After you have paid off your smallest, highest-interest debt, take the minimum payment you were paying on that debt and use it to help you pay off the next small debt that has the highest interest rate. 

Once you have that debt fully closed off, you can then use those two minimum payments to help you pay off your next debt expeditiously (again, choose a small debt with a high-interest rate). You will notice a snowball effect as the minimum payments you are freeing up are leveraged to help you make larger and larger payments against one debt at a time. 

This is one of the fastest and most successful ways to pay off debt and get back in the black.

Advanced Tracking

A fantastic way to ensure your budget stays on track is to pre-purchase gift cards for the month for your family’s variable expenses. It works like this: if the regular automobile expenditure on gas is $500 per month, consider buying a gift card for a chain gas station and using that for the month. 

This technique can also work with coffee purchases, grocery shopping, or anything else that is an anticipatable monthly expense.

Here are some quick hits on ways to help grow your pocketbook:

  • If you get a raise at work, put the extra amount into debt payment or savings.
  • Don’t dine out unless it’s free by using points or gift cards that were actually gifts.
  • Instead of purchasing books, consider going to the library.
  • Are your grocery bills growing? Trying growing your own vegetables instead. Your local library may have a seed library, you can get a plethora of information on growing your own garden through books, and often there are seminars with experts.
  • Instead of going to the movies, renting, or paying for a streaming service, consider borrowing a movie from the library.
  • Trade in your satellite radio and its monthly price tag for audiobooks and streaming services, which often cost you nothing with a library card.
  • When going on a long car ride, pack car snacks and refillable bottles of water for everyone. This will avoid lots of expensive stops or hitting up the drive-thru.
  • Are your kids growing like weeds? Consider buying their latest seasonal wardrobe at a thrift shop or gently used children’s shop, filling any remaining gaps by purchasing new ones.
  • Trade in vacations that require flights for day trips closer to home.

Once you have done the fundamentals to get your house in order and feel ready to move the needle on purchasing, here are a few avenues to pursue.

Borrow from your future savings

Borrow from your Future Self

The Home Buyers’ Plan, or HBP, is an interest-free and tax-free way to borrow up to $35,000 from your Registered Retirement Savings Plan (RRSP) to buy or build a home for yourself or a related person with a disability. It is one of the first-time home buyers’ plans in Canada. 

This is a great way to come up with a down payment if you already have some RRSPs. If you don’t, this may be a good way to save money for your RRSP while also getting a tax credit to help reduce your income tax. 

The only caveat to this program is that you must repay the money to your RRSP within 15 years. If you don’t repay the money, it is treated as income, and you will be subject to taxation on the money you withdrew as though it were income. Check with your financial planner or advisor to see if this option is right for you.

Go Tax-Free

The Tax-Free Savings Account, or TFSA, can also be an excellent place to save your down payment money for your future happily ever after.

The fantastic thing about a TFSA is that the money can grow tax-free in this account. This means you won’t have to pay income tax on the money you earn as it grows in this account. Consult with your financial planner or advisor.

Help with Your First-Time Buying a Home

There are many first-time homebuyer programs available, too many to list, actually! However, we don’t want to leave you hanging, so here are some quick hits for first-timers:

Connect with your bank and meet with a lending specialist at the beginning of your journey. They can set you up with bank products that will often complement your contribution or, at worst, help you to meet your financial goals faster.

Connect with a non-bank-affiliated mortgage broker. This is time well spent as they can tell you what products above and beyond what the bank offers are available to you and, more importantly, put you on the path to financial fitness to ensure that when the time comes, you qualify for them.

Check with your city. Often, there are programs and incentives offered at the municipal level.

The Canada Mortgage and Housing Corporation is a useful government program. Although often criticized, it is a good resource for folks just starting out and speaks to the First-Time Home Buyer Incentive, a shared-equity mortgage with the Government of Canada.

calculate clients on mortgage financing

In Conclusion

This process can feel like an epic quest, and it’s easy to get discouraged. Lean on the experts who are invested in seeing you be successful, as your success is also theirs. 

No one is more motivated to see you achieve your goals than friends or family, so speak to them about your goal to save for a down payment. They might help keep you on track by inviting you over for coffee rather than going out on a coffee date, and also might contribute to your TFSA in lieu of birthday or Christmas gifts. 

Saving money takes a long-term commitment and is a sign of a person’s life vision. There may be no greater feeling than getting the keys to your very first home!

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