A question that comes up more and more within a competitive market such as Vancouver is where are first time home owners going to acquire the funds needed for a down payment? Sacrifices must be made, not only within special occasions like putting off a vacation, but day to day financial exposure like cutting out your daily latte can all assist you in getting one step closer to home ownership. Here are some tips that my client’s have found helpful when saving for their first down payment that go beyond the typical check list from the bank.
Move in with your Parents, or move Down a level in Rental
Explaining that you are strategically (and temporarily) moving back home can be the quickest route to maximizing your savings if you are already renting within a strong market or large city. Another alternative, if cozying up in your parent’s basement is not an option, is to move down one level in rental status. If you currently rent a two-bedroom apartment, try minimizing your spatial requirements down to a one bedroom, or studio suite. The difference in rental expenses can be enough to annually bank between 1-2% of the average down payment required in Vancouver.
Dial down your Expenditures
The day to day financial exposure of carefree daily expenditures can go unseen for even a trained financial eye. This can include the noon routine of eating out at your favourite downtown restaurant, or drinks out on the weekend verses staying in void of a corkage fee. For larger purchases such as vacations I advise swapping the five star suites for a unique Air BnB experience that can slash your accommodation bills by 80%, or a staycation to rediscover the city you want to own a piece of. It’s important to note that the daily expenditures, small or grand, are the purchases that tend to navigate our lifestyle. Don’t consider saving for a down payment as the kiss of death to your life as you know it. Instead re-invent what it means to travel, dine, and enjoy the luxuries you have become accustom to. Here are some of our favourite alternatives:
Are you an avid reader, so much so Amazon sends you a Christmas card? Visit your local library
Do you love a good flick, popcorn included? Subscribe to streaming services like Netflix and Hulu
Are you a foodie that craves a restaurant experience? Try swapping dinner for lunch time options
Office worker by trade, jet setter by choice? Try a unique Air BnB experience or a staycation
Organic produce from the farmers market filling your fridge? Try your green thumb at an urban garden
Tech guru of your group? Utilize your knowledge with smart technology to reduce your energy costs
Have a hobby that can be monetized? Harness your talent in tangible forms, or mentoring/tutoring services
Take advantage of the RRSP Home Buyers Plan
Dedicated as a program to assist in saving for a down payment without tax implications, the RRSP Home Buyers Plan allows you to withdraw up to $25000 in a calendar year from your RRSP’s to buy or build a qualifying home for yourself, or a related person with a current disability. To be considered you must be a first time home buyer purchasing a qualified home in order to participate in the Home Buyers Program. For more information regarding this program, visit the Canada Revenue Agency site for forms.
Create a Budget
Document your current fixed costs (costs that are consistently required each month) and assess your current variable costs (costs that can be dependent based on consumption each month). Following a budget that can be applied towards an on going savings plan dedicated to your down payment can create financial habits that can be applied when evaluating the costs associated with home ownership such as maintenance and closing costs. Often first time buyers unknowingly neglect closing costs that are typically incurred during a property purchase. Closing costs are the fees associated with the purchase of your home that are in addition to the actual purchase price, such as legal fees and disbursements, land transfer tax, and moving expenses.
Set up a regular and on going savings plan
You’ve made it through documenting your fixed costs, assessed your variable costs, and have applied for the RRSP Home Buyers Program, but more than research, these efforts must be put into action. Implementing a regular and on going savings plan with your current financial institution can guarantee your savings will be transferred out of mind and out of sight (hopefully minimizing temptation) and safely kept with the intention of a homes down payment. You can arrange for a set amount to be taken each month, from your bank account of from your save and is often referred to as a pre-authorized debit (PAD), pre-authorized contribution (PAC), or pre-authorized purchase (PAP).
We recognize you’re at a point where potentially buying property is a realty and assume you have made your way into adulthood knowing typical banking like paying down credit cards is always encouraged, but we want to get creative in how to maintain your lifestyle AND achieve your home ownership dream. We would love to hear your creative methods that brought you towards your financial goals without feeling pinched, cheap, or drained in your efforts before you began.
With these approaches to saving for your down payment you are one step closer to shopping for your dream property. Call you Vancouver Real Estate Expert at 604 729 5203