First Time Buyers - 8 Creative Ways to Come Up With Money for a Downpayment
What are the best ways to save up a down payment for a house? We have eight ideas right here.
So many homebuyers whether they are first-time buyers or second-time buyers, who are trying to find ways to save up a down payment. Sometimes it’s really difficult to save money when there’s always so many other obligations to meet. However, we have eight ways that you can utilize to save that down payment and we also have a totally free brochure that outlines all our suggestions, that you can download here. Make sure to subscribe to our YouTube channel because we’re always posting exciting new videos that can help you on your homebuying journey, and we’re posting videos every single week.
- TFSA: The first way, and in my mind the number one way, to find or save your down payment is Through your TFSA, your tax-free savings account. Why? Well, because you can take out as much money as you want at any time from your TFSA, without paying taxes because the taxes were already paid when you put the money into the account. Also, any gain that was made on the funds that you invested is also tax-free. Plus unlike an RRSP, you can remove as much of the total funds as you want, as there is no restriction on how much you can take out at any given time. It’s a great way to start saving some money as you go along, put some savings, even a bit each month, in your TFSA, let it earn money while it’s in there in the form of either capital gains or some dividends or interest, and then when you remove the money to buy your house - it’s all tax-free!
- Investments You Already Have: You would have to check out and ensure you’re not paying stiff penalties to remove your investment funds, however if not, cash in a few investments. Maybe that Canada savings bond you’ve had since you were five years old, which can probably do a whole bunch more good as a down payment for some real estate rather than sitting in there gaining very little growth.
- How about a loan? Maybe a line of credit? If you’re a first-time buyer this likely isn’t an option for you because you still have to come up with your 5% or 10% from your own sources, however if you’re looking to buy a second home you could consult with your banker about potentially withdrawing some equity from your current home. In other words, by increasing the amount owing on your current home, and then take the money and leverage yourself and buy a second home. Also, the interest that you pay on the amount that you’re using for your down payment is also deducted against any income that you make off the second home. Or the bank may even give you an unsecured loan or line of credit that you could use towards your down payment on your next home. The unsecured option could be an option if you have a good credit and a healthy history with your bank.
- Tax Refund: Every now and then people actually get a tax refund! Every little bit counts towards your down payment and a tax refund is a nice tax-free way of putting a little bit more into the down payment fund. One great way of creating a tax refund is by contributing to your RRSPs. Depending on your situation and how much tax you pre-paid during the year, you could get a nice healthy tax refund of which you could use directly on your down payment.
- RRSPs: One of the most common ways of finding some extra money for a down payment on your first home, (it must be your first home), is from your registered retirement savings plan. If you have money in your RRSP then you can borrow up to $35,000 from your RRSP account tax-free. The only stipulation is you pay the borrowed funds back over 15 years. It’s a good way to find a down payment because you can remove the funds tax-free, however the only negative as compared to say your TFSA, is you can only take out a maximum of 35,000 whereas with your TFSA you can take out as much as you want. Plus you have to pay this back.
- Gifts from Family: If someone is willing to gift you a down payment then the banks will acknowledge this as an acceptable source of down payment. If you have a nice family member that’s willing to give you some money, and it must be a gift not a loan, then you could be well on your way to saving a whole down payment.
- The Canadian First Time Homebuyers Incentive: This is a plan where the Canadian government will lend you a down payment for your house of 5 to 10% in return for a 5 %to 10% equity stake in the value of your home. For example, if you borrow $50,000 for 10% of a $500,000 house and that house increases in value up to $1 million, then you have to re-pay the government back 10% of the value when you sell or $100,000. It must be paid back the sooner of when you sell the house or 25 years.
- House Hacks: This actually isn’t a way necessarily to save your first down payment however it’s a good way to save your second. The plan here is to buy a house with (for example) four bedrooms, live in one and rent out the other three in order to pay your current mortgage and secondly, to put money aside for your down payment on your second house. Then when you have enough saved up, buy a second house, move there on your own and leave the first house as a rental property! If you’re willing to do something like this it’s a great way to make money. You sacrifice some privacy to move your real estate portfolio forward in the future.
Be sure to download our free folder called Creative Ways to Find Money for Your Downpayment, and be sure to visit our First Time Home Buyers website: www.VernonFirstTimerscom where we have even more information and videos on all the many first-time buyer incentives there are out there.
If you’re ready to get started on the adventure to purchase your first home, Contact Us Today and ‘Just Add Salt!’