Wouldnt it be nice if buying houses was like the latest new car promotion?
No down payment, no interest for 12 months! Sure, and wed love it if Revenue Canada just took our word for it on what we owe this year. Where has the trust gone?
But until things change, youll have to deal with the reality of down payment requirements when planning your next home purchase. In an ideal world, that means putting up 20 per cent of the purchase price and avoiding that nasty high-ratio mortgage insurance. If youre like most buyers though, the 5 per cent minimum is more realistic.
The challenge is that with many homes selling for $300,000 and up these days, even 5 per cent, or $15,000, can be daunting for the first time homebuyer. However, with a little resourcefulness and knowledge of the options, your prospects for managing that critical down payment will be looking up in no time.
Save it Up
Maybe because they didnt accept VISA on the Mayflower, our ancestors learned to buy things the hard way: By saving for them. Its a strategy wed do well to emulate, especially when looking at houses for sale.
Once you figure out the price range youll be shopping in and what that translates to for a down payment, decide on your time frame and make a plan. How much do you need to save each month to reach your goal? It might seem overwhelming at first, but its amazing how small changes can pay off big time in the end.
Drink the free coffee at work for a while instead of buying the five-dollar latte. Eat in more and dine out less. Before you know it, youre ready to make an offer, and the satisfaction you feel when the deal closes will top the greatest caffeine buzz youve ever had.
Pass it Down
One potential source of a down payment that sometimes gets overlooked is an impending inheritance. Its something we often dont talk about for fear of seeming insensitive or opportunistic.
But when the writing is on the wall, theres nothing wrong with penning that into your savings plan towards a new home. After all, its why a grandparent or uncle puts you in their will in the first place, so they can enhance your life when theyre gone. Besides, if theyre moving on to a better place, why cant you?
Take it Out
Have you ever turned the house upside down trying to find your glasses, only to realize they were on your head the whole time? Sometimes we have what we need and dont even realize it.
Perhaps youve been putting away thousands into a tax-free savings account and thinking it had to stay there. As it turns out, you can withdraw any amount at any time with no penalty or taxes to pay.
Your Registered Retirement Savings Plan (RRSP) is another option in funding a new home purchase. Provided that you pay it back within 15 years, withdrawals are allowed without penalty through the Canada Revenue Agencys Home Buyers Plan. Its one agency thats rarely on your side, so take advantage while you can.
Save it up, pass it down or take it out. These are just three of the many options for securing a down payment on your new home with minimal stress or hardship. Just dont try the IOU approach, especially with the taxman. He may lock you up and throw away the key. And while youd finally be getting into some prime real estate with no down payment, the trade off will come when you meet your new neighbors.