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Best way to start saving for a down payment on a house (and how to do it fast!)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

April 22, 2019 - Karl Yeh

Planning to buy a home? What's the best way to start saving quickly? In this episode, we discuss top tips to save up for a down payment on a home. We also explore if you should pay off your debt before saving for a home, how much should you actually save and if it's better to save more than 20% for a down payment. Finally, we talk about down payment assistance programs you may want to take advantage of. 

  

  

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Transcription:

Hi everyone, I'm Karl and welcome to another Homebuyers School video. A channel where you get the latest strategy, tactics and tips from home buying experts. And remember if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription [00:00:30] button below. Hit the little notification bell so you don't miss anything.

So today I'm joined by Mujtaba Syed, Mortgage Specialist with the Bank of Montreal. And the question we're gonna answer today is

How do you save up for a down payment?

So Mo, do you have any tips in how to save for a down payment on a home?

Mujtaba Syed:             

Yeah, that's a great question.

A lot of clients are ... their eager to buy and the thing that's really holding them back some of the times, it's just a down payment.

So the tips that I usually like to give my clients for a down payment is start saving early, definitely [00:01:00] .

Save tax rebates

If you have your tax rebate that comes in, a lot of clients get some pretty big tax rebates from the government, if you have a decent, good year on your taxes, save that right away. Put it into a savings account.

Maybe you work out your budget to see how much money you can throw in a monthly basis, right? And just put it towards your down payment.

If you're paying off debts a lot sooner than you think, more than over the minimum payment, sometimes you might not need to do that.

Pay the minimum on debts to save for a house

You can actually just pay the minimum payment that's required to save up money for your down payment to get into the house sooner.

[00:01:30] And then once you're in your home, then you can start paying your debt off as much as you want at that time.

Sell any extra assets

I've advised clients on selling some assets that they might have. They might have a few more vehicles than they need, so I've actually advised to sell some vehicles.

Some of my clients have done that, got their down payment through that.

Use your stocks, bonds, RRSP

Stocks. If they have some stocks, have some bonds, RSPs is a really great one to start using towards down payment if you're a first time home buyer.

Ask help from family            

And the other [00:02:00] one that a lot of people don't really consider is just checking if your family can gift you the down payment, which is a good majority of first time home buyers.

Because people realize that it is tough for a first time home buyer to be able to pay rent, and save and have the obligations that you might have. Your family might be willing to help you out, that's perfectly okay.

The bank will look at that as down payment if they gift it to you.

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Karl Yeh:                      

And remember if [00:02:30] you want to know more about RRSPs and buying your first home, watch the video above and in the description below.

 

So Mo, when you're talking about all these tips, how about debt?

Is it advisable to pay off your debt sooner before putting a down payment?

Mujtaba Syed:             

Yeah, that's a good question, Karl.

So a lot of it just depends on your scenario, right?

So if your debts are manageable and your qualifications are there...

So for example, let's say you qualify for the home that you want and your debts are being managed based on the minimum payments that you are making, it's advisable to actually save for your down payment to get [00:03:00] into the home sooner.

Because ideally what you're doing is you're really missing out on any equity growth or debt pay down on your mortgage the longer you take to save up for that down payment.

The market could increase, you could miss out on that growth there.

 

   

 

And the biggest thing that a lot of people realize is that they're renting.

So there there's an extra added cost for delaying being a homeowner, because the rent that you're paying could be equity being built into your home.

So have that conversation with your lender.

If you qualify for your mortgage with [00:03:30] the debts that you have, definitely stress saving for down payment right away.

The key is to get into a home, the sooner the better.

So you can start paying it down sooner, start building equity in your home sooner, and actually appreciate any appreciation that your home can actually do in the meantime.

Karl Yeh:                      

And if you want to know more about the advantages of owning versus renting, watch the video above and in the description below as well.

 

 

So if I really need to get money fast for a down payment, do you have any recommendations?

Mujtaba Syed:             

Definitely, yeah.

So if you have an [00:04:00] asset that's just sitting around, like a vehicle, you might have something else that you don't really need, you can definitely sell that.

Once again, kind of look at your own scenario to see if that works.

Another really good one is if you have some RRSPs put away, you are allowed now based on new incentive program to take $35,000 out as a first time home buyer. You could ask family for a gift if they can help you in the meantime.

 

 

Mujtaba Syed:             

And then if you have any other things that you can consider that have some kind of tangible value that you can use, you can use pretty much any [00:04:30] of that as down payment.

Karl Yeh:                      

So I know you mentioned RRSPs, but what other avenues in terms of borrowing money for a down payment would you recommend?

Mujtaba Syed:             

So the way it works borrowing money when it comes to the down payment, the stipulation is the original 5% of your purchase price has to be from your own sources.

That means savings, RRSPs, tax free savings accounts, stocks, cash or a gift, which is also considered to be part of your own sources.

Anything above that technically can be borrowed depending [00:05:00] on your situation with your lenders. So have the conversation with them.

So if you're looking at putting 10, 15, upwards of 20% down, the original 5% has to be from your own sources.Mujtaba Syed:             

You cannot borrow the original 5%. You can't take the money from a line of credit, you can't take that money from a credit card or from any other borrowed sources. It has to be from your own sources.

Now there are ways around this, I know a lot of builders like Brookfield, they have a down payment program [00:05:30] that you can talk to.

There are also added measures as well where you can buy the home today.

I love that program because you get into the house today based on today's prices, and then you actually work on installments to get your down payment.

So by the time your home is ready, your down payment has been paid for so you don't have to miss out on that.

So it's a great program. So definitely reach out to your Brookfield Sales Representative, or the Sales Manager or the Area Manager and ask them about that if that's something they haven't brought up.

Mujtaba Syed:             

But we are [00:06:00] willing to work with you guys as much as possible to help with the down payment. I know it can be an added stress.

But once we sit down and figure out all the options, there's a lot of stuff we can do to help you guys.

Karl Yeh:                      

So how much should you actually save in terms of for the down payment?

Mujtaba Syed:             

So the minimum required is 5% of the purchase price. So you need to save a least 5%, or get it from any other sources.

Like a gift, selling an asset or anything like that. But the minimum 5% has to be from your [00:06:30] sources.

Karl Yeh:                       

Is it actually better to maybe save up for 20%?

Mujtaba Syed:             

Yeah, there's a big debate on something like that.

And to me the way I look at it, yes or no. Right?

So if you're really close to your 20% and you only need let's say an extra one or 2% to get to the 20th, then definitely do that because there's an added benefit.

When you put 20% down, you're saving yourself the default insurance cost, right? Which gets tacked onto your mortgage and there's an interest implication on that extra charge on your mortgage [00:07:00] that you have to pay that back over the life of the loan.

It is a one time charge, so if you do it now, and let's say a couple of couple of months or years later you have 20%, you don't get that charge back. It is a one time charge. So there is some implications to that.

Mujtaba Syed:             

But if you're at 5%, to me I've advised clients not to save for 20%, because it could take them years. In those years, there's actually cost them a lot more money in rent that have to pay, any equity that they would have paid down on their mortgage, the market could have picked up in two years, it could have some  appreciation.

And [00:07:30] if you look at the numbers at the end of the day, they might have lost more than they would have gained by saving 20%. so it really just depends on everyone's scenario and everyone's scenario is different.

For five to twenty I would not recommend it.

But if you're really close to 20% and you just want to wait a couple of months to get you there, then 100%, you should definitely, definitely try to do that.

Karl Yeh:                      

So the last question I have for you is I know you mentioned certain builders have certain down payment assistant programs[00:08:00] , but

Are there any kind of outside down payment assistance programs that you know of or would recommend?

Mujtaba Syed:             

Yeah.

So a lot of lenders have their own assistant programs where they can give you a deposit loan to get you into a home sooner.

The only stipulation is that it has to be paid off prior to possession. And that's a stipulation that kind of confirms it's from your own sources.

So if you get a loan but your possession date is let's say next month, that is not considered to be actual down payment. That is considered borrowed down payment.

Mujtaba Syed:             

But for a borrowed [00:08:30] deposit loan program, you need to have that loan paid off. So if you're build is a year, longer than a year that's also another great program.

Take the loan from the bank, get approved today, get the contracts signed with the builder today, and pay off that loan over the 12 month or however the time period is so it considered to be part of your own sources.

Karl Yeh:                       Great. Do you have anything else to add?

Mujtaba Syed:             

I would recommend if you're looking at buying your first home, start saving early, right? [00:09:00] Get into the habit.

Build that habit for savings.

It's something that is going to help you for the rest of your life later on is to always have some sort of savings, and get into the habit of saving.

So this is a great way to start, right?

Mujtaba Syed:              Y

ou have a goal in mind, you see that home at the end of the tunnel. So just save towards that. You can always reach out to your lender if you're a specialist, ask us any question to see how we can actually improve your savings.

Maybe sit down with a financial planner, work on a budget for yourself. [00:09:30]

And maybe improve on your own saving habits, that would be a really great one.

Start an RRSP right away. Great incentive, great vehicle for first time home buyers down payment program. Great things to do. And just reach out to us with any questions you might have.

Karl Yeh:                      

Perfect. So the question of the day I have for you is:

Do you have any additional tips in terms of saving for a down payment that you've used?

Let us know in the comment section below.

So thank you very much for watching and remember, if you enjoyed this video or found it helpful, hit the [00:10:00] like button. Remember to comment and remember to subscribe. Thank you and catch you next time.

  

Your turn:

Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts.  

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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