This article was originally published on RBC Discover & Learn and has been republished here with permission.
Saving for a down payment is one of the biggest steps to buying a home. Your down payment affects the amount of your mortgage, how much mortgage interest you’ll pay over time, and could even help with your pre-approval for a mortgage.
Setting goals and putting money into a separate savings account is one way to stay motivated as you save for a down payment on your new home. A separate account may help you track your goal — and keep you from using those funds for other things.
With the high cost of real estate in many parts of the country, some parents and grandparents are helping the next generation in buying a first home. If your family has some additional funds available, consider talking to them about lending or gifting money that can help you towards the down payment for your mortgage loan. Every family is different, so talk to them about options, including repayment plans and a return on their investment.
If you and a friend (or two) are each thinking about buying a home instead of renting — but don’t have enough money saved individually — why not pool your money and buy one together? Naturally, you’d have to be aligned on what’s important to you and how you’ll split up the home, the costs, and the eventual equity, so it will be vital to choose home-buying partners who share your point of view.
Many first-time home buyers use their RRSP savings to help increase their down payment through the federal government’s Home Buyer’s Plan. Through the plan, eligible first-time home buyers can use up to $35,000 in RRSP savings ($70,000 per couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP. Keep in mind that while using your RRSP for a down payment may help you buy a home sooner, it could also mean missing out on some tax-sheltered growth. So be sure to ask your mortgage specialist whether this strategy makes sense for you.
Your down payment impacts many elements of your home purchase. How much of a down payment you can put down influences:
When you’re getting your down payment together, don’t forget to reserve some cash to cover costs that are bound to come up when you’re moving into your new home, including:
Saving for your down payment is not something you need to do alone. It’s a great idea to use a mortgage payment calculator to crunch some preliminary numbers yourself. At the same time, it doesn’t hurt to talk to a mortgage specialist early on and get valuable advice for moving forward.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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