How We Saved For A Mortgage Down Payment

Estimated reading time: 9 minutes

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.

How We Saved For A Mortgage Down Payment
How We Saved For A Mortgage Down Payment

Saving A Down Payment For Your First Home

Are you thinking of making a 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.

It took me years, but I saved my money because I knew I could make more money over time if I invested it wisely.

I also realized that I didn’t want to rent but own my land.

It wasn’t easy, and I had to give up spending my money on holidays, pub nights, etc, to reach my goals.

Working long hours got me into homeownership by having no debt and paying cash for everything.

Mrs. CBB was the same way growing up, so we understood personal finance.

We discussed money when we were dating, a topic we bonded over because it was a passion for us both.

While we were young, we both wanted to save money, hoping for an early retirement while enjoying good health.

Five years after buying our first Canadian home, we became mortgage free, although we have no kids yet. (Update 2023, we now have a 9-year-old son)

We follow all the tips I share in Canadian Budget Binder to achieve our debt freedom.

Budgeting and planning your goals can get you to debt freedom faster than any other plan.

Purchasing My First Home

When I purchased my first flat in the UK at around 21, 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. \

Many people took advantage of the 100% mortgage. However, I’m glad I was not part of that group.

I bought my first flat at GBP 19,000 (Great British Pound) in the late 90’s.

Two years later, I sold my flat for a three-bedroom home for GBP 49,000.

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 GBP 23,000.

I sold my three-bedroom home in 2006 for $128,000, making a profit of GBP 79,000 plus what I initially invested and paid down over the years.

Remember 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 ensure we were well-informed before jumping in!

Below is what we learned about buying a home and what we needed to do to make that happen.

Planning A Home Purchase

Plan for the type of home you want, especially if you have specific “must haves” on your list.

Know what area you want to live in, and once you know how much money your lender will give you, this will help you make 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 walk around and create a list of what you want in your future home.

Minimum Downpayment To Purchase A Home

What Is the Minimum Down Payment On A House?

I suggest the minimum down payment on a house is saving the complete 20% to put down your mortgage.

This also helps avoid the CMHC fees that come with it if you don’t.

If you don’t have the 20%, it might not be the right time to purchase 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 two 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, and never overextend yourself.

Becoming Mortgage Free

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

If you don’t want to pay off your home right into retirement or even after, try to gauge when you would like to be mortgage-free.

I encourage you to speak with a financial representative to see the process.

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.

You can talk to a Mortgage Broker or a Mortgage Lender at your local bank.

Don’t forget to plan for closing costs which many people fail to factor into buying their home, which could cost you thousands of dollars.

Related: Should You Get Mortgage Insurance or Life Insurance?

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.
  • Know how much money you owe people-Liabilities. Don’t forget the loan from Uncle Joe you must pay back.
  • What are 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 more precise decisions when all the information is on the table. 

When a bank offers you $500,000 for a house with a $1800.00 monthly mortgage payment, don’t forget all the other things you must pay for.

Related: 8 House Expenses You Should Expect As A Homeowner

If all you see is the big house, fancy appliances, and the prestige of owning a home, you might quickly sink your ship.

TIP: Paying off as much debt as possible before buying a home is suggested.

Pay Off Debt First

Get out of debt first, then save for a downpayment for a house.

I promise you that waking up in the morning will be better than waking up to debt.

Do you know your credit score?

If you don’t, you can order your free credit report from Equifax or TransUnion once a year.

If you want to know your credit score, you must pay for that.

Things like bad credit mortgage options are available, but research and know what you are getting into.

If you want to buy a home and have lousy credit ask yourself why you have bad credit and find ways to improve it.

Reviewing your credit report yearly is essential to ensure no errors or fraudulent activity on your account.

A bad credit score can mean the difference between owning your dream home and not owning anything.

I had to build credit in Canada as a new permanent resident or pay cash for a home.

Getting a mortgage was near impossible unless we based it on Mrs. CBB’s income, including the down payment.

I received a credit card from Sears and President’s Choice Financial, which helped me build credit.

Once my credit was established in Canada, we could move forward with a mortgage.

Home Ownership Timeline

Once you know the size of the home you want to afford, you can set a timeline.

Having a timeline helps you create a budget spreadsheet so you know how much money is coming in and where you spend it all.

Using a budget to document your expenses is one of the most valuable things you can do for your finances.

Some people will save using their Tax-Free Savings Account (TFSA), Savings Account, or RRSP as a First Time Home Buyers.  

Goals are also helpful 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.

Many agents would be more than happy to walk you through the process to prepare you better.

You may also want to talk to other experienced homeowners to get their insight and advice since they are experienced.

Private Home Buying

If you choose to buy a home through a “Private Sale,” ensure you understand what you are getting 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 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.

Budgeting

Canadian Budget Binder Budget Spreadsheet

How To Plan A Budget

A budget is helpful for more than just budgeting for a down payment.

Beginning a budget plan is crucial to life-long financial success, something we are grateful for.

The earlier you understand money, the better armed you will be on the roads ahead.

Not everyone will be a millionaire by retirement, but by budgeting, we may achieve the goals we want, sometimes faster than expected.

Be An Informed Home Buyer

Real Estate can be a wise investment when you are an informed buyer or a poor investment without proper planning and research.

Related: How Not To Become House Poor

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.

Stick to your gut instincts 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 suitable if you do all your homework.

Costs To Buy Our First Home

In our situation, the Canadian bank offered us $500,000 for a mortgage at a 4.10% interest rate.

We purchased our first home for $265,000.

After everything we learned, we saved enough for 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.

Retiring early is possible as long as you play your financial cards right.

Spending less than you earn and knowing where your money is going are the first 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 shoveling snow in the cold.

We won’t be thinking of you; I can promise you that!

Discussion: How did you begin saving for the downpayment on your first home?

Please leave me your comments below.

Thanks for stopping by,

Mr. CBB

Subscribe To Canadian Budget Binder

.

Share to...

Similar Posts