Our Canadian Home-Tips to Save for a mortgage Down Payment

mortgage down paymentA HOME IS A BIG INVESTMENT

 

Saving for a down payment on a home is probably one of the biggest goals many people set out to achieve when they want in on the real estate market.

Are you thinking of making the move into home ownership? Deciding whether you should continue to rent or buy a home is a decision only you can make.

People often ask me why I chose to buy a home so young when I was living in the UK. I decided to buy so young because my parents taught me the value of money early.

I saved my money because I knew that I should be able to make more money over time if I invested it wisely. I also realized that I didn’t want to rent but that I’d rather own my piece of land in this world.

I’m not going to lie and say it was easy as that’s simply not the truth. I worked hard and long hours to get me into the home ownership scene. I had no debt and paid cash for everything I needed. My wife was the same way growing up so we both had an understanding of personal finance.

Money was something we talked about when we were dating and a topic that we really bonded over because it was a passion for us both. We wanted to save what we could while we were young in hopes of an early retirement while enjoying the present.

Just five years after buying our first Canadian home we are now mortgage free and under the age of 40 although we have no kids, yet. We followed all the tips we share on this blog to get us to debt freedom. We are now living proof that by budgeting your money and planning your goals can get you to debt freedom faster than no plan at all.

 

My first home

 

When I purchased my first flat in the UK at around 21 years old I saved about 10% as a down payment. Back then you didn’t need to put anything down and could pick up a mortgage at 100% but at a higher interest rate. Lots of people took advantage of the 100% mortgage however I’m glad I was not part of that group.

I bought my first flat at $19,000 GBP (Great British Pound) in the late 90′s. I sold my flat 2 years later to buy a 3 bedroom home for $49,000 GBP. Today my old flat is worth about $60,000 pounds that would be about a 200% profit if I sold it today. Although that’s not the case I sold it for $23,000 GBP.

I sold my 3 bedroom home in 2006 for $128,000 pounds making a profit of  $79,000 GBP plus what I initially invested and paid down over the years. Keep in mind all that money didn’t end up in my pocket after paying all the people I needed to pay.

Over the next few years we learned all we could about the Canadian real estate market to make sure we were well-informed before we jumped in! Below is what we learned about buying a home and what we needed to do in order to make that happen.

Planning

 

Plan for the type of home you would like to own especially if you have certain “must have’s” on your list. Know what area you want to live in and once you have an idea of how much money your lender will give you this will help in making final decisions.

If you want a more in-depth look don’t hesitate to visit open houses in the areas you fancy living. This will help you to walk around and  create a list of what you really want in your future home.

What Is Minimum Down Payment On A House?

I suggest the minimum down payment on a house is saving the full 20% to put down on your mortgage. This also helps to avoid the CMHC fees that come along with it if you don’t. If you don’t have the 20% it might not be the right time for you to be purchasing a home. The last thing you want to do is be house poor even if the interest rates are low.

Remember interest can shoot up in a blink of an eye, so plan for them. Make 2 family budgets looking at different scenarios, higher interest rates for example or what if one spouse gets injured or loses a job. Know what you can afford.

How old do I want to be when my house is paid off?

If you don’t want to be paying off your home right into retirement or even after then try and gauge when you would like to be mortgage free. If this is your first home it may not be your last as many people move a few times before settling in their forever home.

I would encourage you to speak with a financial representative to see what the process entails. You can either talk to a Mortgage Broker or a Mortgage Lender at your local bank.

Don’t forget to plan for closing costs which many people forget to factor into buying their home which could cost you thousands of dollars. You can also use this handy Mortgage Calculator but I suggest talking to your financial institution first.

 

Income/Assets/Liabilities

 

  • You need to know how much money you gross and net each month-Income.
  • You will also need to know how much money you owe people-Liabilities. That’s right , and don’t forget the loan from Uncle Joe you must pay back.
  •  You will also need to know your Liquid Assets (money you can easily access) example- Savings account, TFSA etc. This will give you an overall picture of your financial health.

You can make clearer decisions when all the information is laid on the table. If the bank offers you $500,000 for a house at $1800.00 a month mortgage payment don’t forget all the other things you have to pay for. If all you see is the big house, fancy appliances and the prestige of owning a home you might be sinking your ship pretty fast.

TIP: Paying off as much debt as possible before buying a home is suggested. Get out of debt first the save. I  promise you waking up in the morning will be better than waking up to a tonne of debt.

 

Do you know your credit score

 

If you don’t you can order your free credit report once a year from Equifax or Trans Union. If you want to know the actual score you have to pay for that though.

There are such things as bad credit mortgage options that are available but do your research and know what you are getting yourself into. If you want to buy a home and you have bad credit ask yourself why you have bad credit and find ways to improve it.

It is important to at least review your report yearly to make sure there are no errors and no fraudulent activity happening on your account. A bad credit score can mean the difference between owning your dream home or not owning anything at all.

I had to build credit in Canada as a new permanent resident or pay cash for a home as getting a mortgage was near impossible unless we based it on Mrs. CBB’s income and the down payment. I was able to get a credit card from Sears Canada and from President’s Choice Financial which helped me build credit.

Home ownership timeline

 

Once you have an idea of the size of home you can afford or want to afford you can set a timeline. Having a time line helps you to set up a budget spreadsheet  so you know how much money is coming in and where you are spending it all. Using a budget to document your expenses is one of the most valuable things you can do for your personal finances.

Some people will save using their Tax Free Savings Account (TFSA), Savings Account or RRSP as a First Time Home Buyer.  Goals are also useful as a tool for understanding where you want to be in 5, 10 or 25 years. You might want to set a goal of paying off as much debt as possible while saving.

Is this home going to be a potential investment home?

 

Home ownership buyer process

 

Talk to different real estate agents and learn about the home buying process. There are many agents that would be more than happy to walk you through the process to better prepare you. You may also want to talk to other experienced home owners to get insight and advice from them since they are experienced in the process.

If you chose to buy a home through a “Private Sale” make sure you understand what you are getting yourself into. Selling your home privately means there is no agent involved, you do the marketing of your home. Essentially you save money by not paying real estate commissions to an agent.

Top organizations such as Property Guys or Comfree will walk you through the process if the for sale by owner route is the path you want to take. Many people have successfully sold their homes and paid themselves and so can you.

 

Canadian Budget Binder Budget Spreadsheet

Budgeting

 

How To Plan A Budget

A budget is useful for more than just budgeting for a down payment. A budget plan is crucial to life-long financial success. The earlier you understand “money” the better armed you will be in the roads ahead.

Not all, if any of us will be millionaires by the time we retire but by budgeting we may achieve the goals we want, sometimes faster than expected.

Real Estate can be a smart investment when you are an informed buyer or a poor investment without proper planning and research. There also is no hard and fast rule that says you have to purchase by a certain age.

Don’t let the  potential Canadian housing bubble and interest rate fiasco cloud your decisions either. Stick to your guns and follow your dreams but don’t set yourself up for failure. There are also reasons not to buy a home but you will know when the time is right if you did all your homework.

In our situation the Canadian bank offered us $500,000 for a mortgage. We ended up purchasing our home for $265,000. After everything we learned we went on to save enough for around a 30% down payment and a decent emergency fund with no consumer debt.

 

 

Retiring Early

 

No one says you have to keep up with the Joneses to prove you are better than they are. Planning to retire early is a possibility as long as you play your financial cards right. Spending less than you earn and knowing where your money is going is the fist steps to getting you closer to your dream.

If you do it’s no one’s fault but your own when we’re enjoying our retirement on the beach and you’re still shovelling snow in the cold. We won’t be thinking of you, I can promise you that!

 

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Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. canadianmdinvestor says:

    Live within your means…definitely sage advice!!

    BTW, my blog today was dedicated to you…BUDGET!

  2. Great information here…I’d like to add that a good Mortgage Broker can work with you to develop your goals and build a custom mortgage strategy. Getting you into your home is one thing, getting your home mortgage free is the end goal…get some good objective advice on the best way for you to get there.

  3. I sold my first home almost 6 years ago using Property Guys. They were just new in my area so my listing was ‘free’. They came and took all the pictures and listed it on their website. My mother in law works for a lawyer so the legal work was all handled by them and all I had to do, was to hold open houses. I saved about $8400 in fees that a real estate agent would have charged me. I will sell my current home the same way also.

    Property Guys also had a Wagjag deal not too long ago, so keep an eye out, if in the market.

    • Hi Shelley
      We will use for sale by owner if we sell as well as we really don’t see the need for a realtor although I may get told otherwise. I’d like to hear a story from both sides of the coin. A FSBO gone right and wrong and what to avoid. If you would like to share your story in a blog post send me an email. Cheers and thanks for sharing here in a comment. Cheers Mr.CBB

  4. Christine Weadick says:

    We’ve been in this house for 20 yrs now. There was a book I had a look at on buying a house in Canada at the local library a while back. I was interested to see how much had changed since the last time (a lot!!) and when I saw the book come up for sale at last fall’s library book sale for $1.00 I grabbed it fast. It might be a little out of date at this point but for a dollar it’s a starting point if nothing else. I can’t think of the author’s name offhand but the first name was Geraldine….It was very well written and since then I have seen at least one other book on the Canadian real estate market that would be worth reading …. can’t remember the author there either but it was a man and the title was…. Welcome Home…… I think. These books were on the Canadian market not the US so the information was good here…..

  5. Katrina B says:

    I’m not sure. I have savings for the kids and some for myself, what exactly I’m saving for myself I’m not sure. I rent currently from my parents but there is a chance my dad may sell our farm for retirement, my house cannot be rezoned seperately so if he sells I need somewhere to live. Who knows by then maybe ill be living with someone but I dont want to be stuck with no where to go and depending on the kids ages then I dont want to move into an apartment. I just want to be prepared if I end up not needing it for that purpose Ill continue to save it for retirement one day

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