Mastering Down Payment Saving

January 8, 2024
home down payment savings St. Albert

How many of you are struggling to save at least 5% down for a home in St. Albert and sweating about whether or not you could even qualify for a mortgage? If this is you, I can 100% say you are not alone. I get calls everyday from people who worry – just like you. Down payment is non-negotiable to home ownership, lenders want to know that you have some equity in the property and that you have made an effort to put aside/save each month to achieve the goal. There are a couple of ways to save:

Budget Monthly to Save

In a perfect world 10% – 15% of your monthly income should be put aside in savings – money you can use if needed for a lot of reasons – like a downpayment. Budgeting as a tool is a great way to determine:

  1. How much you can afford to pay each month without becoming house-poor.
  2. How much discretionary income you have that can be diverted into a downpayment savings plan.

Take 30 days and track what you spend – on credit cards, monthly payments, debits from your accounts and fee’s you pay for things like banking. To be truly accurate you need to account for everything from coffee at Tim Horton’s to a beer afterwork. Kids activities and food, both from the grocery store and when you dine out. This exercise can be very vulnerable, but absolutely mind blowing when you see the results. My husband jokingly said we would not eat out for 30 days or until the Oilers reached 500 average for the season, whichever was the greater of the two. We DID NOT plan on the Oilers continuing to lose streak! My budget however was treated to over $300 extra in savings and renewed awareness of spending habits that may not be working in our favour. If you are not a fan of spreadsheets or simple pen and paper then there are several on-line apps for budgeting that track directly from your account and credit cards. You will need to be conscious of cash you spend and ensuring it is in the right category. At the end of them month review it and see where your expenses are negotiable (can be cut or reduced) or non-negotiable (minimum payments, medical expenses, loan payments etc.)

  • What expenses are negotiable? “things that you can live without or less of”
  • What expenses are non-negotiable? “things that are firm commitments like loan payments, utilities, medical expenses”

Once you understand where the money goes you can divert a percentage of the non-negotiable to savings. How aggressive you are depending on how motivated you are to reach your down-payment goal.

For those who want to try out the budget with a mortgage payment:

  1. Replace your current rent payment with taxes and an average mortgage payment. If you want a ball park idea of what a payment might look like text me at (780)236-5714 and I will set you up with my mortgage planner APP to get some numbers.
  2. Add in utilities (water/heat/electricity) just an average will work.
  3. Subtract what you currently pay for rent and any utilities per month you currently pay.
  4. Difference + what you will put into savings each month.

Based on an average $350,000 single family home purchase in Edmonton and a two-bedroom apartment rental In St. Albert today, the math looks like this:

                                    A $2395 + B $500 – C 1800 = $1095 savings

You now have a set amount going into savings each month AND you are living within the budget similar to after purchasing a home. Can you afford the payment? Where might you need to adjust your spending? Doing this little extra step means you will not be overwhelmed when you buy your first home.

Little by Little it all adds up!

Top up Savings Account

This is a simple solution to add quickly to the savings pool. Set up a top up savings account in the app for your primary bank account. Have the system automatically round up, to the nearest dollar on every purchase and put the difference into the top up account. So, a purchase of $25.50 would put $0.50 into the top up account. Makes for really easy budgeting in your primary account as everything is round numbers! The Top up Account grows and you really do not even think about it.

RRSP Account

RRSPs are a great way to save and leverage for the downpayment on a house. If you have an employer with a matching program which significantly increases your RRSP savings amount. Let’s say you put 5% of your monthly wages into an RRSP savings and your employer matches that and contributes 5%. That is 10% savings per month (Best Practice).

Income of $48,000 = $2400 from you + employer contribution $2400 = $4800 per year in RRSP

Federal First Time Home Buyers Programs

Knowing how challenging it can be to save for a purchase as large as a home, the federal government has put in place programs to assist First Time Home Buyers.

  • The most recent program is the First Home Savings Account. This account works like an RRSP – when you deposit, it is tax deductible and it acts like a TFSA when you withdraw – it is not taxable. This type of account has a maximum deposit of $40,000 per year.
  • The First Time Home Buyers Incentive program allows first time buyers to access an additional 5% down for purchasing an existing home or additional 10% down if they are purchasing a new build. The additional funds are considered a shared equity program where the home owner will repay the original amount plus a small share in the increased value of the home at the time of sale
  • The Home Buyers Plan allows First Time Buyers you to withdraw up to $35,000 from your RRSP plan to purchase a home. This withdrawal is tax free at the time of withdrawal and requires the amount taken to be repaid within 15 years.

Gifted Down Payment

Gifts from family are more and more common, particularly when you understand that gifting is a living inheritance. Gifted Down-payment may only come from immediate family – Parents, siblings or grandparents. For anyone who has been blessed with type of assistance you know the tremendous value it can possess. Those who choose to gift you will need to give a letter confirming:

  • Who they are and their relationship to you.
  • How much they are gifting you
  • Confirmation that is a gift with no expectation of having the money returned.

The money being gifted has immediate value to the receiver and the tax implications are significantly less than if it is done at the time of passing. Grandparents have become key contributors to this trend in the last few years and continue to enjoy the value of this concept.

Home ownership is a marathon – not a sprint. The first step is committing to start saving, then work with a mortgage broker to plan out your timelines, credit review and rebuild if necessary, so when the money is in the savings account- you are ready to get into a new home.

What do you need to know to get started?

Call or text today (780)236-5714 and find the answers you are looking for.



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