Strategies to save for that elusive down payment

When you're looking to buy a home for the first time, getting that big chunk of money for the down payment can be daunting. It's important to know your opti


While you can make a down payment as low as 5%, making a larger down payment will cost you less in the long run because you'll be paying less in in

terest. (And if you're living in a large urban center where housing prices tend to run a lot higher, that can make a pretty big difference.) Your best bet is to aim for a down payment of at least 20% of the value of your targeted price range.


So now that you know how much you should be saving, how do you go about getting your down payment? Here are a few tips on how you can come up with the funds.

Take advantage of the Home Buyers Plan. This is a plan that allows first-time home buyers to withdraw up to $25,000 from their RRSPs and use the fun
ds towards their down payment. It's considered to be a loan, and you have to repay it within 15 years, starting the third year after you made the withdrawal.

Accept a financial gift. You can also have a family member or a friend provide you with the down payment in the form of a financial gift. They'll need to provide and sign a letter indicating that no repayment of the money is expected. You might also want to have them include a statement that says they have no third-party interest in the property.

Use your line of credit. This option is recommended only if you have excellent credit and little to no debt - the less number of payments you have to manage the better.

Ask your bank if they have a no down-payment program. Some banks are now offering home buyers with excellent credit the option of getting a mortgage with no down payment. Depending on which bank you're dealing with, you may need to have enough money to cover the closing costs (typically, about 1.5% of the purchase price) and you'll likely stay with the bank for the full term of the mortgage.

Open a down-payment savings account. If you're not in a huge rush to buy a home (perhaps it's more of a two- or three-year plan), open a special savings account just for your down payment. Figure out how much you need to set aside each paycheque, and be diligent about doing so. If you're really intent on buying a home, ask family and close friends to make "donations" to your down-payment account for birthdays, anniversaries and other holidays in lieu of gifts.

Finally, regardless of how you end up getting your down-payment funding, don't forget to factor in the closing costs (home inspection, lawyer fees, property taxes, property insurance, moving etc.)  - an expense that always manages to catch first-time home buyers off guard.




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