The hurdle of pulling together a down payment for a home can seem overwhelming, but it may not be the impossible goal that you think it is. There are government programs designed to give new homeowners a helping hand, and with some strategic planning and budgeting, you may not be that far off from being able to own a home.
Understanding Down Payment Requirements in Canada
The minimum down payment for a home in Canada depends on the property’s purchase price: 5% for homes costing up to $500,000; 10% for the portion of the home’s price between $500,000 and $999,999; 20% for homes priced at $1 million or more. The good news here is that if you’re looking at buying a gorgeous new mini home, you’re in that 5% bracket!
Tips for Saving for a Down Payment
The first step is to know how much you’ll need by pricing out homes (check out our homes here, and contact us for the most up-to-date pricing on the home models you are interested in). That way you can calculate your target down payment. You will need to factor in costs such as closing fees, legal expenses, and moving costs. We can also advise you on what those might total.
It’s really hard to know how much money you need to save if you aren’t tracking where your money is going, so setting a budget and tracking your spending is essential. Most banking apps these days offer tools to do this for you, but you can work it out on a piece of paper if need be. You may be surprised at how much money is going on non-essential items, and see easy ways to cut back. You might also want to consider:
- Reducing discretionary spending like dining out or streaming subscriptions.
- Downsizing your current living situation to save on rent.
- Paying off high-interest debt (credit cards and store cards for example) to free up more funds for saving.
Some people find it helpful to set up a dedicated savings account and arrange automatic transfers from your paycheck. This ensures consistent progress without the temptation to spend. You don’t have to start by diverting a huge amount to that account, but you’ll likely be pleasantly surprised at how quickly it adds up.
It’s worth noting that some people have their families lend them funds for a downpayment, and using a cash gift is an acceptable option too.
Government Initiatives to Help You Save
Canada offers several programs to ease the financial burden of buying a home. Here’s how you can take advantage of them:
- The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) to use as a down payment. Couples can combine their withdrawals for a total of $70,000. You’ll need to repay this amount over 15 years to avoid paying taxes or fees, but it’s a great way to unlock funds for your purchase.
- Launched in 2023, the Tax-Free First Home Savings Account (FHSA) lets Canadians save up to $8,000 annually, with a lifetime limit of $40,000. Contributions are tax-deductible, and withdrawals (including investment gains) are tax-free when used for a home purchase.
- The First-Time Home Buyers’ Tax Credit provides up to $1,500 in tax relief to help offset closing costs such as legal fees or inspections.
- Here in NS, the provincial gov’t also contributes an additional $3,000 for first-time homebuyers, investing in new construction, payable to you after closing. This too, can go a long way towards repaying your down payment expense.
If you’re committed to becoming a homeowner, saving a down payment is the first step. You can do this, it just takes planning, commitment, and being savvy about the grants and initiatives you can leverage.
