Hey, my name is Jasben Lai and I'm a realtor in Calgary with LiveInnerCity.
Today. We're gonna talk about how to save for a down payment to purchase a home.
When you think about saving $25,000 to buy a $500,000 house,
that sounds like a daunting task. Doesn't it?
In this video,
I'll help you break it down to reach your goals and give you tips along the way.
So why is a down payment important?
In Canada,
you cannot get a mortgage loan to purchase a home without a down payment.
The only way to avoid paying a down payment is to forgo a mortgage entirely.
That means you're buying the property with all cash.
If you could afford to pay cash, why are you even watching this video?
A question we you often get asked is how much should I save for my down payment,
the larger, the down payment that means lower monthly payments.
And that's also less interest you'll pay in the end of the day.
With the lower the payment that means you also have more disposable income every
month. So you can do the things that you love.
Our recommendation is don't overdo it and put too much of down payment because
you won't have enough money in the bank in cash.
And if you do need money for whatever reason,
then your only option is to borrow your own money back from your mortgage,
through the home equity line of credit or something like that.
Wait, did you just say to borrow your own money back and pay interest?
When you're choosing the amount you need to save,
you kind of need to think about two things - where do you feel comfortable in
terms of your monthly expenses and how much can you save in the time you have
chosen for when you want to buy. Keep in mind,
you need a minimum of 5% down payment on any home purchase.
If you have down payment, less than 20%,
you're required to buy mortgage insurance.
It sounds like extra insurance is better right? Wrong.
This is mortgage default insurance that's required by the lender because how
they see it is that if you put less of a down payment,
then you have less invested in this purchase.
This is called a high ratio mortgage.
Of course you will sometimes need to make the move with less than 20% down.
And that's not a problem.
So make sure you understand it first.
So you can make the right decision for you. Give yourself a target.
Here's an example.
If you want to save $15,000 for a down payment on a $300,000 home and say,
you want to buy the home in two years - break it down into manageable,
monthly savings needed. And that's $625. That sounds a lot more achievable,
right? Aim to save more than this,
and you'll reach your goal quicker or build a bigger buffer for yourself,
for your future. Here's a tip though.
Keep in mind that house prices during this time that you're saving do also
fluctuate. So what you originally thought was about $300,000 for a purchase.
It might have gone slightly up or down from there.
And remember there are unexpected costs that do come up and that might put a
stall or put you a little bit behind on your saving for your down payment.
So you just have to adjust from there.
Next question that we usually get is how can I effectively save money?
Saving money or money management is not a taught life skill.
Most people end up wasting time and money before they save for their future.
You need to shift your mentality about money. Of course it's for spending,
but why not invest in the future for yourself?
There are three main methods that you can tweak so that you can save quicker.
Number one is increasing your income. Second is decreasing expenses.
Number three is investing your money in something such as stocks, bonds, RSPs.
They can easily take out later that will give you a return on investment.
Next tip is you need to have a budget because if you don't know where you are
today, financially, and where you want to be tomorrow,
then it will be very difficult to reach your goal in the time that you allot
yourself.
All right, guys,
I'd like to reach out and ask you to like this video so you can help others to
save for their down payment for their next home or saving money in general.
Let us know. What is your goal and how far away are you from that goal?
We would love to hear it. So put that in the comment section below.
The next tip that I have for you is set up a structure that you can keep to keep
your down payment saving funds separate from your daily expenses,
perhaps even in a different savings account.
You gotta avoid temptation to dip into your saving and just know that it's
normal to have fluctuating expenses from month to month. For example,
if you are trying to save a thousand dollars a month every single month,
but maybe this month, you had an extra expense,
cause you can only save for $900,
then commit to yourself that next month you're gonna make up for it by saving
$1,100.
And the next point is, make sure you pay off your debts on time.
If you don't pay off your dad's, it's gonna harm your credit.
It might actually get you a worse approval on your mortgage,
down the road or not even get approved at all. But if you pay them on time,
then you're going to build your credit along the way,
which will give you the best outcome when you are ready to get that mortgage
approval.
This will also get you into the habit of not spending more money than you have
in the bank.
And that's kind of a general rule of thumb is don't be spending next month's
paycheck or else you're gonna be living paycheck to paycheck.
If you wanna know more about how to build the best credit score to buy a home,
check out this video and also I'll leave you a link.
The next tip is, make sure you save for an emergency fund.
At least for the first few months of expenses before you actually save for your
down payment. When you need cash,
it'll be there and you won't need to dip into your down payment savings. Now,
if you're practicing,
managing money in the proper way while saving for your down payment,
this is gonna to build good habits for when you move into your new home,
you'll be able to properly manage your monthly expenses of home ownership.
Do you have more questions about mortgage financing? If you do,
please send us a message by hitting the contact us link in the description below
and our in-house mortgage specialist, Felix Chan will get back to you.
Here are some other tips you can use right away,
cut out any unnecessary expenses because regular small things do add up and
track your results in a budget.
Use a spreadsheet that you can review every a month to see your progress.
This is crucial so that you'll be able to tweak things as you go.
Cut down bigger expenses,
maybe on rent or perhaps move in with a roommate or even move back home.
Or maybe things like car. If you have a car payment,
you can always look at to buy a vehicle cash instead of financing a vehicle.
And save large sums of money whenever you can.
And it's possible times like when you get a bonus at work or perhaps tax refund
time and explore other sources of income for yourself.
Maybe a job change or having a side hustle and you can even choose to invest
your money.
That's the secret to find financial wealth because a home is actually an
investment too. Even after you buy home,
you can live up and rent down perhaps if you have a basement suite or the other
way around the lower expenses and get yourself financially ahead.
If you're a first time home buyer,
take a look at a couple of the government assistance programs out there like the
home buyers plan, as well as the first-time home buyers incentive.
Now go out there and put all these skills to work,
follow our tips and track your goals. And we have no doubt.
You will reach that goal sooner than you think.
Keep your mindset with treating the future you to one of the goals you have
always dreamed of, which might be home ownership.
And even after you've covered your down payment,
you'll find that saving becomes easy year and sort of like a game.
What will you treat yourself or your loved ones to next?
Being smart with your money is a crucial life skill that will help you in all
types of payments or situations and creating true wealth is highly linked to
your success in an easier retirement. If you want more home buying tips,
you can check out our playlist here.
And my name is Jasben Lai from the LiveInnerCity real estate team,
best of luck with saving for your down payment.