It’s a tough market to get a mortgage application approved. In order to avoid paying for default insurance, home buyers typically need to secure 20% of their home’s purchase price for a down payment.
There are other benefits to paying a more substantial down payment. For one, it reduces your monthly principal and interest payment. In terms of long-term savings, you’re cutting down on the overall interest you will pay on your mortgage. There are steps that you can take now to help to secure your future home.
Pay off existing debt
Once you are out of the red, you’ll no longer be paying interest on loans. You’ll have the added perks of a better credit rating which makes the process of securing a mortgage quite a bit easier.
An excellent method for clearing your debt is known as the Snowball method. For this, you’ll work on the smallest debt first and work your way up.
- Start off by listing all your debts from smallest to largest.
- Commit to making the minimum payment on all your debts.
- Work towards paying as much of the smallest debt off as quickly as possible.
- Once this debt is wiped, you repeat the process until you are debt free.
What makes this process so effective is that with every debt you clear off, you’ll have less and less monthly payments. This makes the next debt easier to tackle.
Reduce outgoings and budget
This comes down to priorities, and its best to map out the expenses that you’re going to cut. This could be the well-known savings act of taking a coffee cup to work rather than getting your brew from the baristas and bringing in your own lunch.
There are plenty of ways to get to that down payment figure quicker such as reinventing date night, so it doesn’t include a three-course meal. Or trading your current car for a more energy efficient model that slashes gas costs. Everyone will need to weigh these expenses against the goal of owning their first home sooner. We all have expenses; however everyone’s priorities will differ based on their lifestyle and what makes them happy.
Budgeting has gotten a lot simpler with apps at your fingertips that sync across your household’s devices. Earlier this year at Just Compare, we analyzed what the market has to offer in this article, which gives a comprehensive view of what finance management apps best suits your needs.
Set a time frame
Once you’ve reviewed the first two factors (paying off debt and budgeting), you can begin to look at how much money you currently have at the end of each month to set aside for your savings account.
With our mortgage calculator, you can play around with different time frames and down payment figures to figure out a down payment goal. From there, you’ll be able to calculate how long it will take to pull this sum together. You can work on reducing this over time even turning it into a challenge.
Review your vehicle situation
If you’re buying a house as an individual or a couple, there may be some value in getting rid of one of your cars (even if temporarily). With car insurance, gas costs, maintenance and repairs, especially when multiplied by two, they can be a considerable household expense. The average annual vehicle costs in Canada is $8,600 and $13,000 per person, which is the average rent for a two bedroom apartment.
Before you make any decisions, investigate other options. Can you cycle to work or take public transport? Maybe you can carpool with a work colleague? One option is to do a trial run for a month, try not to use your car during this time period and see how you manage. If you find it doable, maybe think about selling your car and placing the money into your savings account.
Look beyond the down payment
Securing a down payment requires a lot of hard graft and saving for individuals and couples. Once this is secured, and the mortgage repayments start there’s a tendency for people to get back into their previous spending habits. If you’re committed to paying off your mortgage early check out this article on our Just Compare blog.
Designate all your bonus, raises and overtime income to your savings account. If you can survive on your current salary, you’ll accelerate the time to reaching that down payment figure by placing all the perks of your hard work into a separate account for your future home.
Savings accounts, such as Tangerine’s, enable their new clients to earn more with up to $50† in cash bonuses. You can also earn 2.75% interest on your first Tangerine Savings Account, TFSA or RSP Savings Account for the first six months. This interest rate helps to stretch your down payment.
Get everyone on board
If you have children, it’s great to show them this process that you’re going through. Teaching children how to budget can make the process easier. Make them excited about the savings, for example, the additional money saved will allow them to have a new bedroom.
Children learn about the value of money from a young age. Watching their parents work hard to achieve their goals teaches children how discipline, budgeting, and thinking outside the box, all of which can pay off in the long run.
Pick the right chequing account
It might seem counter intuitive to be discussing a chequing account in an article about saving. However, some chequing accounts may be costing you a lot of money in fees while others come with concrete financial benefits for their customers. Tangerine’s chequing account is an online, no-fee daily chequing account that provides interest on your hard-earned dollars. There are chequing accounts in the market that allow you to automate allocated savings to leave your account. It’s also a good option to check out what cash rewards your account provides.
Securing a down payment requires consistency and sacrifice, however, with these tips, and sufficient research, you can make your money stretch further. When the time comes for you to shop around for a mortgage, check out our mortgage comparison service to get our professional insight into the best product tailored to your lifestyle.
Looking to speak with an expert, click the below link to connect with a Mortgage Specialist from BMO. There is no obligation to you, and they can help you with any further questions or concerns you may have on your mortgage journey, helping you to be mortgage free sooner: