Saving up to buy a house is an iconic part of the classic vision of success — the white picket fence, the SUV, and the mortgage on a multi-bedroom property. A place to raise a family in a safe neighbourhood is a highly sought-after goal. Of course, it doesn’t come about automatically. To get that mortgage to buy the house, you need a down payment and to get that money, you need to save.
Thankfully, there are tons of ways to save for a down payment in Canada.
How To Save For A Down Payment In Canada
There is more than one way to gather money for your down payment, and often it helps to use multiple approaches simultaneously. By planning ahead and using all resources available to you, it is easier to reach your financial goals more quickly.
Make Your Money Work For You: Invest And Save
Earning interest on the money you put aside can help you grow your savings at a faster rate. Here are a few ways you can invest or save your money while earning interest on it:
Savings Accounts
Instead of holding your funds exclusively in a chequing account, it is wiser to separate your savings into a high-yield savings account. Depending on the financial institution, the rates will differ.
Additionally, some banks and credit unions offer incentives to new clients. By placing your money in a high-interest savings account, you can add to your principal amount, thus being able to save more in the same amount of time.
Investment Accounts
When it comes to savings, it helps to make your money work for you. Even if you are unsure about investing in ETFs and stocks, there are stable, reliable ways to invest your money. Many even help you save on taxes, adding value to already useful services. Popular options for Canadians include:
- Tax Free Savings Accounts (TFSA)
- Registered Retirement Savings Plans (RRSP)
- Guaranteed Investment Certificates (GIC).
Habits To Help You Save More
- Automate Your Savings – There are services available that automate your savings. By rounding up purchases to the nearest dollar amount and transferring the remainder into your savings, you can take digital spare change and make it count. Eventually, those small amounts add up to substantial savings.
- Cut Costs – One of the obvious, but hardest methods to save is by cutting costs. The first step is to take an honest look at your monthly budget. Consider where you are spending more than you need to. Can you switch to no-name products or make some tweaks to your food budget or subscriptions?
Boost Your Income
Once you’ve cut costs and amplified your savings, the final way to help you save more is to boost your income. This gives you a more substantial disposable amount which you can apply towards your savings. Paired with trimming your spending budget, you can achieve your savings goals much more quickly.
Ways To Earn Extra Income
- Rent A Room – If you have an extra room, then renting it out via Airbnb is a proven method of getting extra money. Outside of some routine maintenance, it demands very little time and effort.
- Side Hustles – Whether it’s working as an Uber driver, teaching an online class, or getting a part-time job, working extra is a good way to up your income. From freelancing websites to local tutoring jobs, there’s always an opportunity to earn more.
How Much Money Do You Need For A Down Payment?
The amount required for your down payment varies based on the price of the home you plan to purchase. The more your home costs, the higher the required down payment. For example:
- Homes that cost less than $500,000 require only 5% down
- Properties that cost between $500,000 and $999,999 require 5% on the first $500,000 and 10% on the remainder
- Houses that cost over $1 million require a 20% down payment (Effective December 15, 2024, the home price cap for insured mortgages will increase to $1.5 million)
| Note: Many new home buyers aim for the lowest down payment possible (5 percent). However, when you make a down payment of less than 20 percent, you are legally obligated to purchase mortgage default insurance. |
Do You Have To Save Up For Mortgage Default Insurance?
The CMHC, short for the Canadian Mortgage and Housing Corporation, is one of the providers of mortgage default insurance in Canada. This insurance is technically purchased by the lender, who then relays those costs to you. The amount gets included in your regular mortgage amount and you pay it as a part of your routine payments.
The premium is determined by the amount you borrow relative to the value of the home. A higher percentage will result in heftier premiums.
Pro Tip On How To Save For A Down Payment: Calculate How Long It Will Take You To Save
In order to plan out your future, you need to get a firm understanding of how much you need to save. From there, you can get a better picture of how much time it will take you to save the necessary amount.
How To Calculate A Down Payment Savings Timeline
You can create a timeline by first considering any savings you currently have, and whether any of those can be put toward your down payment, without compromising your emergency funds.
Let’s assume you’re saving for 5% of a $350,000 home. This will require a total savings of $17,500.
- Based on how much you can save each month – if you can only save $500 a month, it’d take you 35 months (2 years 9 months) to save $17,500.
- Based on when you want to have the money saved – if you want to have the $17,500 saved in 2 years, you’d have to save $729 each month.
Programs To Help You Save Money For A Down Payment
There are programs available to assist consumers in purchasing a home, particularly for those new to the housing market. These services are meant to make housing accessible, aiding consumers in accessing funds and incentives. Among the offerings are:
Home Buyers’ Plan (HBP)
This is a service offered through the Canadian government. The program enables borrowers to withdraw from their RRSPs in order to purchase or build a home. The service allows you to withdraw up to $60,000 from your Registered Retirement Savings Plan without paying tax.
You can use these funds toward the down payment on your mortgage. To qualify, the home must be in Canada and must be possessed by the individual using the HBP.
First Home Savings Account (FHSA)
The FHSA is a newly created program that first-time home buyers can use to help them purchase a home. When you open an account, you can contribute up to $8,000 a year for 5 years. Contributions made to the accounts are tax deductible and any interest earned is tax-free.
Down Payment Assistance Programs
Depending on where you live, there may be certain provincial or city-specific programs that offer down payment assistance. Here are a few examples:
| Location | Program |
| Montreal | Accès Condos program |
| Calgary | Attainable Homes Program |
| Nova Scotia | Down Payment Assistance Program (DPAP) |
Other Ways To Help You Put Money Together For A Down Payment
- Borrow Funds – Not all lenders allow money to be borrowed for down payments. Generally, CMHC-insured mortgages do not allow borrowed funds as a down payment. However, Canada Guaranty and Sagen do allow borrowers to use borrowed funds as a down payment.
- Ask For A Gift Down Payment – It’s becoming increasingly common for young couples to turn to family or friends as a source of down payment funds. Luckily, lenders allow borrowers to use these funds as a gifted down payment. In order to make this a legitimate financial exchange, both the borrower and the ‘gifter’ will have to sign and submit a one-page ‘gift letter’ that clearly stipulates that the money is a gift instead of a loan.
Final Thoughts On Saving For Down Payments
When done properly, saving for a down payment is a straightforward process that need not impact the quality of your life. So long as you plan ahead, develop a thorough budget, and stick to it, a down payment is well within your reach. By using all the resources available, your dream of owning the perfect home can be brought to fruition in less time than you might expect.
Down Payment FAQs
How much do I need to save for a down payment?
Should I put a high or low down payment?
Should I invest my down payment savings?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
