Buying a home may feel like a dream. A distant reality as house prices mean required mortgage payments are out of reach for many. That said, there are many ways to save for a home that can also be used for any goal: a new car, a vacation, retirement.
Most people find that once they’ve hit that first goal, they usually hit their other goals by continuing their saving strategies. If you can stay motivated and keep saving, there’s a good chance you’ll achieve your goals.
It’s worth noting that buying a house isn’t the only or right choice. Rather than stretch your finances, renting and investing your savings could work out better. If you are keen on buying a house though, don’t let numbers scare you. The right strategy can get you there.
Understand house prices where you are looking to buy
Researching areas where you want to live is your starting point. House prices will determine what you’re looking for and what you can afford. You’ll need to balance your wants and needs with what you can afford; house prices may even make you consider a completely new area.
How much do I realistically need to save?
The minimum down payment depends on the price of the house you wish to buy. The below table outlines how much you’ll need to put down:
| Purchase price | Minimum down payment needed |
| $499,999 or less | 5% of the purchase price |
| $500,000 to $1,499,999 | 5% of the purchase price for the first $500,000; 10% for the amount over $500,000 |
| $1.5 million or more | 20% of the purchase price |
Many will try to put down a 20% down payment. By doing so, you’ll avoid the need for mortgage default insurance which is required if your down payment is smaller. You may choose to apply for a mortgage once you have the minimum down payment for a house; accepting that you will need mortgage insurance.
As is always the case, there will be unplanned expenses that you may wish to save for too. Costs like real estate agent commissions or unexpected repairs. It’s worth having a bit extra saved to deal with these costs just in case
Using the right accounts to accelerate your savings
Using the following tax-advantaged accounts can help build up that down payment a little bit quicker.
First home savings account (FHSA)
A FHSA is a tax-free account that lets you save up to $40,000 towards your first home. You can contribute a maximum of $8000 per year which reduces your taxable income for that year too. Any gains you make won’t be taxed when you make a withdrawal to buy your first home.
Tax-free Savings Account (TFSA)
A TFSA is a savings account where any gains you make on your savings won’t be taxed. Whilst it won’t reduce your taxable income for the year, withdrawals are tax-free regardless of how you spend it.
Home buyers plan
The Home Buyers Plan allows you to borrow a maximum of $60,000 from your registered retirement Savings Plan (RRSP). The withdrawal is tax-free though it must be repaid within 15 years.
High-interest savings account (HISA)
Whilst not a tax-advantaged account, a HISA is another way to boost your savings. Most standard savings accounts pay low interest rates. HISAs though, usually offer higher interest rates that could boost your savings over time.
The ongoing cost of maintaining a home
It’s worth noting that beyond a down payment, you’ll need to keep saving if you buy a house. Maintenance and repairs are things to constantly consider. You may have washroom repairs, or appliances that need replacing. You’ll also have daily expenses (groceries for example) whilst looking after your home. A healthy savings balance can help keep your finances on track while ensuring the quality of your life isn’t compromised.