Saving for a downpayment on a condo

Buying

Saving for a down payment on your first condo or house can seem to be a daunting and overwhelming task. If you’re currently renting in Toronto, you know that buying a condo or house takes a lot of money but, don’t let that scare you out of ownership. With smart strategies and patience, you’ll work your way towards ownership and set yourself up for financial success for many, many years to come.

Many of our first-time-buyer clients find that once they have achieved their first savings goal, the strategies we outline can help achieve other financial goals as well. Perhaps you’ll become a real estate investor with more than one condo to your name! So, keep on following them. It all depends on how motivated you are to accomplish your financial goals.

Do Your Research

Knowledge is power. So, the first step in your savings plan should be to do some research on the real estate market. What neighbourhood do you want to live in? Do you want a studio or a one-bedroom condo? Highrise or mid-size building? Do you want to purchase pre-construction or resale, and what are your timelines?

These are all good questions that you’ll need to answer in order to set the stage for your savings program. Working with a real estate broker this early on can benefit you in many ways. Your broker can provide you with neighbourhood information and direct you to possible up and coming areas where your savings can go further. Just because you’re not prepared to buy at that very moment, doesn’t mean a broker won’t help you. We work with many renters who are on track with their savings for their first condo purchase – we answer questions and educate them on all aspects of real estate. If your broker or agent won’t do this, it’s time to find a new one.

Prioritize – it’s a Must

Saving for something important—like a condo—is all about priorities. Do you go out to eat all the time, take expensive vacations, buy all the latest fashions and drive a brand-new car? Or are you willing to tighten your belt and save for a condo? It’s entirely up to you. Which is more important?

If saving for a condo or house is one of your top priorities, then try to identify other areas where you can cut back so that you can put more money into your savings. The best way to identify areas to cut back in is to do a budget. If you haven’t put together a budget yet, that is probably the best place to start.

And it doesn’t need to be overly complicated. Take the past three months and examine your bank account and your credit cards. Categorize your spending into key areas of where your critical costs are (rent, public transit, groceries), and where you think you could trim down. Once you have all of these numbers in front of you, it’s easy to review and make decisions.

Pay Off Credit Card Debt First

You can’t really save money if you’re paying a lot of interest to the credit card companies. The first thing you should do is pay off all of your debts. Start with your smallest high interest debt and pay it off. Then take the minimum payment from that debt and use it to help you pay off the next small debt that has the highest interest rate. Once you have that one paid off, the two minimum payments that you used to pay for those smaller debts can help you pay off your next debt faster (again, choose a small debt with a high interest rate).

You will notice a snowball effect as the minimum payments you are freeing up help you to make larger and larger payments against one debt at a time. This is one of the fastest ways to pay off debt. And once your debt is paid off, take those credit cards and hide them – it’s one of the toughest things to do, but try everything in your power to not use them at all. No online shopping, no dinners charged. Pay cash for absolutely everything – you’ll end up spending less than you would if you’re charging blindly.

If you try to apply for a mortgage with too much consumer debt, you won’t qualify. For most people to qualify for the house that they want, they usually have to pay down their credit card debts first.

Do Things in a Cheaper Way

Living in a big city like Toronto – this will be the hardest one to accomplish. And it will not be fun – we get it. But this is how smart people save a lot of money. They make lifestyle changes by finding different, cheaper ways of doing things without diminishing their fun. Here are some great examples we found:

  • Stick to one entertainment outlet. If you have cable TV, cancel your Netflix account. Can’t live without Netflix? Cable has to go. Like seeing movies? Wait until they come out on the streaming service you already pay for.
  • Do you eat out a lot? Try eating out less or look for cheaper places to eat that you still like. You can also look for Groupons (they still exist!) or buy an Entertainment Book and only eat at the places that have coupons (this will cut your eating out budget in half).
  • Pick one night a week to go out versus three or four nights. Look for bars with drink specials and happy hours. Keep track of these savings and dump that money directly into your savings account. You’ll avoid a killer hangover and feel pretty good about the money you saved in the morning.
  • Do you buy a lot of new clothes? Limit yourself to only 5 new pieces of clothing, shoes and accessories per season. And when you buy, look for off-season deals. We love a good semi-annual Nordstrom sale.
  • If you’re saving for a down payment, you should think about shelving any major holiday plans. Vacationing costs a lot of money so think about staycatations instead.
  • Find a gym that has a monthly fee that covers all of your classes too – spin, yoga, Pilates. These individual classes can really add up on a monthly basis.
  • Consider a side-hustle. Smart-savers know that they can make extra money on the side by doing various jobs. Perhaps it’s a bartending shift on the weekends – what better way to still play with your friends but make money while doing so. Are you really good at digital marketing? Consider a small consulting job for a handful of mom-and-pop shops that need help in your neighbourhood.

Borrow from your RRSP or Use a Tax-Free Savings Account

You can withdraw up to $25,000 from your RRSP to buy your first condo or house. This is a great way to come up with a down payment if you already have some RRSPs. If you don’t, this may be a good way to save money for your RRSP and at the same time get a tax credit to help reduce your taxes. The only catch to this program is that you have to pay the money back to your RRSP within 15 years. If you don’t repay the money, it is treated as income and you will have to pay tax on the money you withdrew as though it were income.

A Tax Free-Savings Account can also be a great place to save your down payment money as your money can grow tax free in this account. This means you won’t have to pay income tax on the money you earn as it grows

We recommend consulting you’re your financial advisor, planner or band for more information how these two options can work best for you.

Saving for a down payment on your first condo or house can seem like an impossible task and to be really honest, it won’t be that fun because you’re going to have to sacrifice. But with short-term sacrifice, you’ll be able to set yourself up for many years of ownership, profit and the potential for hundreds of thousands of dollars in your pocket. Owning your own home rather than renting will prove one of the most successful decision you can make for your financial future. Think of the vacations you can go on then!