Putting Together Money For a Down Payment

Putting Together Money For a Down Payment

Written by Corrina Murdoch
Fact-checked by Caitlin Wood
Last Updated December 3, 2021

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, you need a down payment and to get that money, you need to save. Thankfully, there are tons of ways you can grow your savings. By making prudent financial decisions, you can accelerate the savings process. 

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 five percent down
  • Properties that cost between $500,000 and $999,999 require five percent on the first $500,000 and ten percent of the remainder
  • Houses that cost over $1 million require a 20 percent down payment

While you are only mandated to put 20% down on houses on the higher end of the pricing spectrum, it’s worth noting that a larger down payment can result in more favourable loan terms. It will also limit the interest you pay overall since your total loan amount is less. 

Find out if you can get a mortgage with no down payment.

Particularly considering the rising value of houses in Canada, 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 (sometimes referred to as CMHC insurance). 

Consider The Cost of 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. As a result, it is often wise to save up and make a more substantial down payment. 

Check out how you can avoid paying the CMHC fees.

Understand How Long it Will Take You to Save For a Down Payment 

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. For example, saving for 5% of a $350,000 home will require a total savings of $17,500. 

The first step is to create a timeline. Consider any savings you currently have, and whether any of those can be put toward your down payment, without compromising your emergency funds. Set a goal for the time by which you need to have the down payment amount in full. For example, if you want to make the purchase in the next two years: 

Total required: $17,500

Time allotted: 24 months

Monthly amount saved: $729.17

This means that, in order to have the amount saved, without factoring in interest on your savings account or inflation in the housing market, you need to save an average of $182.29 every week. 

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Programs to Help Put Together 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 that meets certain conditions. You can access the service either for yourself or for a disabled relative. To qualify, the home must be in Canada and must be possessed by the individual using the HBP. The service allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan without paying tax. You can use these funds toward the downpayment on your mortgage. 

First-Time Home Buyer Incentive: Offered through the CMHC, this incentive is meant for qualifying first-time purchasers. It is meant to ease the strain of mortgage payments. A shared-equity arrangement with the Canadian government, the incentive gives either 5% or 10% toward a newly built home. It offers 5% for the purchase of a home already built or for a mobile home (whether new or purchased in a resale). The amount can be used toward the downpayment on a qualifying home.  

Learn more on the CMHC First-Time Home Buyer Incentive.

Ways To Put Together Money For a Down Payment 

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. Some examples include: 

Saving or Investing Your Money

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. 

Keep the Change: 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. Usually, this has no impact on the day-to-day and can drastically improve your savings in a surprisingly short amount of time. 

Put Your Money to Work: 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) and Guaranteed Investment Certificates (GIC). Facilitated by the Canadian government, these plans carry low risk and offer a lot of benefits in terms of interest. 

Getting Lean

Another way to grow your savings is by spending less. 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? Do you really need all three streaming services? What about your daily coffee? You might be surprised to see how much the little costs are adding up. Sure, it might require some small sacrifices, but some quick math can reveal real savings. Per the above example: 

Monthly Savings Needed: $729.17

Morning Coffee: $3.00/day or $60.00/month

Subscription services: $30/month 

By turning a morning coffee into a once-weekly event and choosing only one streaming service, you can save $68.00 per month. These are just a couple of easy examples but can speed up your savings significantly. If you’re willing to live frugal for a short period, you would be shocked to see just how much you can save. 

Boosting Your Income

Once you’ve cut costs and amplified your savings, the final step 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. Some options include: 

Renting 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. Especially once you develop a good reputation on the rental website, it will be easy to draw in prospective renters. 

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. Depending on your approach, you can do the work on your own schedule, ensuring that you can accommodate your day job. 

The key to saving for a down payment is to increase your savings and minimize your spending until you reach your goal. So long as you do this while retaining good credit, a down payment is only a few steps away. 

Final Thoughts on Saving For Down Payments 

When done properly, saving for a downpayment 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. 

Looking For Mortgage Help?

In the market to purchase a home but aren’t sure about your mortgage options? Loans Canada can help connect you to a licensed mortgage specialist.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Rating of 5/5 based on 4 votes.

Corrina Murdoch has been a dedicated freelance writer and editor for several years. With an academic background in the sciences and a penchant for mathematics, she seeks to provide readers with accurate, reliable information on important topics. Working as a print journalist for several years, Corrina expanded her reach into the digital sphere to help more people gain insight into the realm of finances. When she's not writing, you can find Corrina swimming and spending time with family.

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