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Feb 19, 2024reading time icon8 min

How to save money to buy a home?

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How to save money to buy a home?
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Buying a home is an important project at any time in your life. While it's best to prepare as early as possible, it's never too late to start saving. Any budgeting reflex you set in motion now will help you plan your project more effectively.

So how do you save for a home? Discover our investing tips to help you do just that.

Saving for a down payment

While it's a good idea to start saving for a home, you won't stick with it in the long run if you don't have a specific goal in mind. You should know that your savings will be used to obtain the minimum down payment required for your homebuying project. This is the amount required when you take out a mortgage on a property.

Generally, the required down payment is between 5% and 20% of the purchase price of the property. However, the exact percentage depends on several factors, including:

  • Market conditions;
  • House price.

Although a larger down payment is sometimes recommended, it is not an absolute requirement for home ownership. If you can only come up with the minimum required down payment, you'll have to pay mortgage insurance, which protects the lender against any default on your part if the loan exceeds 80% of the property price.

Money of down payment growing

How much does it cost to buy a house in Canada or Quebec?

Before you start saving to buy a home in Canada or Quebec, it's important to understand the costs associated with your future activity. This will help you develop an investment strategy that takes these issues into account. Certain expenses will follow you throughout the amortization period, so it's a good idea to be aware of them now: 

  • Mortgage payments;
  • Homeowners insurance; 
  • Municipal tax payments;
  • Home maintenance costs;
  • Mortgage insurance, if required.

You should also consider these additional expenses incurred before and during your investment:

  • Notary fees, also known as closing costs: vary between 1.5% and 4% of the purchase price of the property;
  • Repair costs.

How can I save money to purchase a home?

Many tips can help you accumulate the necessary funds.

Get your future home budget in order

The first step in planning ahead is to get your personal finances in order. If you haven't already done so, take stock of the expenses you can't escape each month:

  • Your food purchases;
  • Housing
  • Recreational activities: restaurants, bars, weekends out of town;
  • Car or other loan payments.

Once you've identified all of these expenses, determine a realistic amount that you can allocate to your project each month without breaking the bank.

A good way to avoid budgeting mistakes is to open a new savings account dedicated to this purpose. At the same time, set up an automatic transfer each month. This will allow you to invest your money regularly without being tempted to spend it elsewhere. 

Pay attention to your credit profile

If your monthly expenses include loan or credit card repayments, be in good standing with your bank and make your payments systematically and on time. Establishing this habit is an excellent way to avoid unwanted surprises, such as:

  • Paying higher interest rates;
  • Incidents on your credit file.

It's important to remember that the way you manage your debts has an impact on your credit file, which will be analyzed by your financial institution when you apply for a mortgage.

People looking at their credit profile

Maintain good credit at all times

A good credit history means a good credit score. And a good credit score is important for several reasons:

  • Maximize your chances of getting pre-approved for a mortgage;
  • Getting better loan terms, if applicable.

The higher your credit score, the better your mortgage rate and the lower your monthly mortgage payments.

Change your daily spending habits

Even if your budget seems optimized, take the time to analyze it as you prepare your strategy. You may be able to find additional savings by making a few changes to your spending habits.

Of course, we can all indulge from time to time. However, if these activities are too frequent and you have an investment project on the side, choices need to be made.

For example, if you often go out to restaurants, change that habit and cook more meals at home. Watch your reflexes at the grocery store and buy products that offer the best value for your money. Look at your daily energy consumption and see if you can cut back on your vacation or weekend budget.

We'd like to emphasize that these habits need to be changed if you want to save money for a home purchase. You don't have to if you don't want to own a home!

Good to know:

Do you have money left over at the end of the month? A bonus from work? A tax refund, or just lower expenses than you expected? Don't hesitate to put that money aside, too, because it's never too much for your project.

Get professional help

While you can implement these habits on your own, it can sometimes be difficult to step back from your financial situation. To help you achieve your goal more effectively, you can enlist the help of two types of professionals:

  1. Financial advisors;
  2. Real estate agents.

First, don't hesitate to consult a financial advisor who can give you the investment advice you need and help you assess your borrowing capacity. On the other hand, your real estate agent will help you find the property that fits your budget.

FHSA and HBP: government support for your project

Finally, it's good to know that the government has tools to help you finance your homeownership project.

Among the options available to you is the First Home Savings Account (FHSA). It allows you to invest money in your first home tax-free.

Contact your financial institution or advisor for more information.

RRSPs and the Home Buyers' Plan (HBP) for financing your first home

The RRSP is best known as a Registered Retirement Savings Plan. However, the government allows you to withdraw a portion of it to purchase your first home through the HBP mechanism.

The Home Buyers' Plan (HBP) allows you to withdraw up to $35,000 from your RRSP. This allows you to make a tax-free down payment on your first home.

FHSA or RRSP to buy a house?

The RRSP, through the HBP, and the FHSA can be combined to purchase your first home. Again, we recommend that you refine your strategy with the help of a professional.

Men with a piggy bank in his hands

How to buy a house on a low salary?

All the advice we've just given applies to both large and small salaries. However, our explanations need to be more specific if you have a small monthly income.

Buying together with two small salaries

First of all, rest assured that a low income is simply a changing factor in your strategy. While it's certainly important, there are always ways to adapt to the situation.

Take, for example, changing your spending habits. If you don't have enough money for leisure activities and savings, simply stop eating out and buy the cheapest groceries.

You should also avoid taking out new loans, such as car loans, and prefer public transportation, which is a cheaper alternative for getting around.

Buying when you're single and on a low salary

If you're single and on a low salary, we can't ignore the fact that buying a home can be difficult, especially in large cities like Montreal or Quebec City. You'll need to target more remote areas of the province and/or look at smaller properties, such as studios, if you want to have any hope of realizing your project.

We hope these tips and investment advice will help you make the right decisions regarding the purchase of your future home and wish you all the best in your endeavours!

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