Is now the time for buying your first home and getting into the Toronto real estate market? Absolutely. With the market performing and growing as it has been, there is no better time than the present to get into your first home. Sounds simple right? But we know it’s not – there’s budget to consider, monthly payments, neighbourhoods to consider – but the one thing that’s certain is you’re going to need a down payment to get yourself started.
Whether it’s a condo, a house, or even a pre-construction property, you’re doing to need to have some savings in hand in order to make that purchase. We’ve rounded up some of our tips to help get you there. Let’s take a look.
Examine Your Current Spending
We tell all of our first-time buyers to take a good look at their past 30 days of spending. If you want to go deeper, look at 90 days back and see where you can cut things out. Cutting out bad spending habits is the fastest and easiest way to put money that you already have, back into your bank account.
Now isn’t the time for multiple Uber Eats orders, unnecessary subscriptions, and that weekend impulse buying. Go through your spending on your credit cards, debit cards, and even cash line by line, and find your priorities. The rest? See where you can trim.
If something is super important (and makes you happy), keep it. If it’s not, reallocate that money toward savings for that eventual home purchase and pay off consumer debt.
You won’t want to be balancing a mortgage alongside credit card balances. If you’re not yet putting 10 percent of your take-home pay toward clearing debt, it’s time to make that happen, too.
You’ll be pleased that your credit score will also improve as you make progress on your debts, and a higher score could help land you a better rate in the mortgage approval process.
Buying Your First Home – Start Saving Very Early On
Set up a savings schedule that works for your current lifestyle and income and adjust as you go – meaning add more when you can or when you come into some extra money. Gifts, a raise, a bonus at the end of the year – look at these not as opportunities to spend, but a time to save more.
Each time you get a paycheque, put a dedicated amount into a safe cashable GIC or high-interest savings account tucked within your TFSA, RRSP, or eventually the new tax-Free First Home Savings Account (FHSA), which was recently introduced by the Liberal government.
Get Creative with Your Buying Strategy
Most first-time buyers cannot afford their dream home right away, but by getting your foot in the door with a smaller condo or townhouse in a great location, you can start building up equity and move to your dream home later down the road. It’s OK to shift your vision to a lower price point.
There are also other ways to get into homeownership faster than you think. Have you ever considered teaming up with a friend to purchase your first home? In markets like Toronto, it’s easy to build up enough equity within a few years so both sides are then able to use that equity to purchase on their own. We’ve seen this successfully happen many times over. Just think about it – if you have a roommate and you’re both paying rent, what would be the difference between buying and both paying the mortgage?
You can also look for income potential with your purchase, like a rental suite, an extra parking stall, or storage space. By generating income from the property you can better manage your cash flow, pay off your mortgage faster, and possibly allocate more savings towards retirement. There are downsides to take into account like the fact that you’ll be on call 24/7 if something goes wrong like a burst pipe.
Just make sure to get everything in writing and all details agreed to on paper before proceeding. Doing so will avoid a messy situation down the line.
Borrow from your RRSP
To buy your first condo or house, you can withdraw up to $35,000 from your RRSP. 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.
If you’re buying your first home with your partner (or another first-time home buyer) then you can withdraw a maximum of $70,000
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.
We recommend consulting you’re your financial advisor, planner, or band for more information on how these two options can work best for you.
Saving for 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 decisions you can make for your financial future.
If you’d like to learn more about strategies for buying your first home, simply contact us today. We’d be happy to help you learn about the benefits of getting into the real estate market, and how doing so can set you up for a lifetime of success.