September 20th 2016 - Written by Amanda Perkins
If you are like me, a millennial, you are constantly thinking about buying your first home. You may have quickly found out this new chapter of your life has many unanswered questions, different options and paths to take, all to reach your end goal. You may be thinking – but how much should I save? This will depend on what percentage of the purchase price you expect to pay as a down payment. For millennials it is common to put down anywhere from 5% to 20%. The more you save the better but it may not always be possible to get that big chunk of money together. We have put together a few options to get your down payment saving started.
Option #1 – Take your time!
We really mean “take your time”, this option is meant to take place over many years. It can be started by setting up an automatic transfer from each pay cheque based on whatever amount you are comfortable with. Depending on any pre existing debt (like student or car loans) the amount you put aside each month could vary. For example, $100, $200 or $500 per pay! This is a great option if you are looking to build up your savings over a longer period of time. Like they say, “slow and steady wins the race.”
Option #2 – As quickly as possible!
Okay, you have decided you are on the fast track to buying a home and saving your down payment. Similar to option one, it’s always a good idea to set up an automatic transfer into some sort of high interest savings account, allowing you to make major lump sum deposits into your savings. These could come from work bonuses, tax refunds, inheritances or cash gifts. This option allows you to save larger chunks of money quicker than Option #1. This option is not always possible for everyone, but if it’s the route you want to take, you may want to consider taking on a part-time job where you can earn extra money and deposit those funds directly towards your down payment.
Be sure to look at different types of savings account options. It is strongly suggested to put your savings into some sort of high interest account like a RRSP or Tax Free Savings Account. Also be aware of any limitations there may be on certain types of registered savings accounts. Depending on your individual situation you may want to consider putting your money aside in a high interest savings account that is not registered with the government. This could eliminate the rules on how you are able to access your funds when the time comes to buying a home.
It’s a great idea to speak to your local credit union, find out how much of a home you qualify for, what you are comfortable spending and then working out your savings plan from there. 20% of a down payment can be very different depending on how much you plan on spending on a home! Think and plan ahead so there are no surprises and you are ready for any last minute expenses that may come up.