When I set out to save a down payment for my home, I decided to save $40,000. I had originally planned for this process to take three to five years. But due to luck and perseverance, I was able to cut that time in half and managed to become a homeowner in just 15 months.
Saving for a down payment wasn’t easy. I used several methods to accelerate my savings rate. Here are some tips and tricks you can use to save your down payment faster.
1. Research and Set a Goal
When you embark on any savings goal, it’s important to have a concrete number in mind. Don’t start your home down payment journey with a vague idea that you’d like to save an undefined amount of money. Instead, research how much you should save by narrowing down your ideal neighbourhood. Get a feel for the price of starter homes in that area, which will help you determine how much you need to save.
Personally, I knew that starter homes in my desired neighbourhood sold for between $300,000 and $325,000. I also knew that I couldn’t spend more than $1,900 per month on a home including my mortgage payment, utilities, property tax, and insurance. Based on that information and using a mortgage payment calculator, I knew I’d need a down payment of at least $40,000.
Using this goal amount, I was able to map out how much I wanted to save every year, every quarter, and every month. Mapping out my progress gave me a clearly defined standard to achieve.
2. Tap Your Down Payment Sources
To save your down payment faster, try to gather money from a variety of different sources. These sources can be broken down into two categories: lump-sum contributions and monthly contributions.
Lump-sum payments can come from a variety of sources including:
- Income tax refunds
- Selling assets like a car or investments
- Home Buyers’ Plan
- Insurance settlements
These lump-sum payments can quickly boost your down payment and shorten your savings timeline.
Once you’ve exhausted all possible lump-sum payments, focus on increasing the amount you save towards your home down payment every month. Take a hard look at your monthly spending and trim your budget. Don’t be afraid to get aggressive when cutting costs. Giving up a second car, moving to a less expensive apartment or cancelling your cable package are all great ways to save for your down payment faster. All savings you find in your budget should be routed towards your home down payment.
When I employed this method, I found I could consistently save 50 per cent of my net monthly income towards my home down payment, much more than I had initially projected.
3. Clarify Your Motivation
Finding your motivation is key to any significant savings or debt repayment goal, especially if you plan to save more than the minimum five per cent down payment for your home.
For example, I planned to save $40,000 for my home down payment, which would be roughly a 13% down payment on a $300,000 home. While this was my goal, I didn’t technically need to save that much. I could have easily purchased a home with just a five per cent down payment, or $15,000. Saving just $15,000 would have been easier, but there was a reason I’d set that $40,000 goal.
I didn’t want to be house poor.
I knew that putting $40,000 down on a home would result in a smaller monthly mortgage payment. A higher mortgage payment would’ve hindered my ability to save money for my future. This was my motivation to save $40,000.
4. Track Your Savings Progress
When I set my goal of saving $40,000 for a home down payment, I knew that tracking my progress would help me reach my target. I started with a spreadsheet to track my monthly progress and forecasted future contributions such as income tax returns and raises. Every time I was able to increase my monthly contributions, I could see how it affected my overall timeline. It was incredibly motivating.
This approach is easy to replicate and simple savings spreadsheets are available online. Choose one and modify it to suit your needs. Make it a game by setting quarterly and monthly goals, and see if you can beat yourself every month.
For many Canadians, saving for a down payment is the single biggest financial goal they’ll ever attempt. But it shouldn’t take years and years. Using the tips above can reduce the amount of time you need to save and help you become a homeowner sooner.