Do you want to buy a home but don’t have a downpayment? This is one of the biggest hurdles to overcome before purchasing your first home. Here are 3 IDEAS to help you SAVE FOR A DOWNPAYMENT so you can become a FIRST TIME HOME BUYER.
Idea #1: Make your Parents your Partners
My first idea might be both the easiest and hardest thing for you to do: ask your Parents. If you are like me and would rather work three jobs than ever have that conversation, I’m going to flip your perspective – make your parents your partners.
Here is an example of how this can work: if your parents give you enough money to make a 20% downpayment, you then promise to give them 20% of the profit when you go to sell and trade up in 5 years.
You are now presenting an investment opportunity as opposed to just asking for money. I suggest creating a business proposal and set a meeting time to present all of the details to your parents. This is a big investment and should be taken very seriously.
Idea #2: Buy with a Friend
If your parents are unable to help, another creative idea would be to Buy with a Friend. Or even two friends. This is becoming a popular concept, especially for young adults, to get to purchase their first home. The amount you are paying in rent with roommates could be going towards building your own equity.
Idea #3: Save using an RRSP
This idea may not be as creative but it’s definitely a smart way to maximize your savings, consider saving for a downpayment using a Registered Retirement Savings Plan (RRSP) and take advantage of the RRSP First Time Home Buyer Plan.
An RRSP is a tax saving tool offered by the Government of Canada and whatever you buy inside of your RRSP, like stocks and mutual funds, you can get tax savings on. In general, the RRSP that you buy times your marginal tax rate is your estimated tax savings. For most of you, this amount will come to you in the form of a refund when you file tax.
The downside to an RRSP is that when you withdraw money it will count as income that year, meaning that you have to pay tax on it. BUT as a first time home buyer in Canada you can take advantage of the governments “First Time Home Buyer Plan” and you can withdraw up to $35,000 RRSP Tax Free for the downpayment of your first principal residence.
The whole idea of this program is to maximize your tax free savings and then withdraw the amount to buy a house. This is a very short explanation, here is a link below that goes into all the finer details of the program: CLICK HERE TO LEARN MORE.
One thing you do have to be mindful of is that government will require you to pay back the RRSP you are withdrawing for your downpayment over the next 15 years. So as you are looking at your finances as a new home owner you have to factor this payment into your budget.
And if you don’t pay that amount back in any given year the government will add the unpaid amount as income for the year and you have to pay tax on it.
There is a limit to the amount you can add to RRSPs every year and you can find your limit on your MY CRA ACCOUNT.
***If you in the St. John’s area and are looking for a financial advisor to help set up your RRSPs send me a message and I can give you some referrals.***
I hope you found this information helpful and it gives you some ideas for saving for a downpayment on your first home.
If you have a downpayment and are ready to become a first time home buyer you might want to check out my blog on how to get started.