Saving Up For Your First Home
First-time homebuyers don't have it easy. We offer up advice on saving up for your starter home.
Everything you need to know about saving up for your first home
If you’re a first-time home buyer, consider the following statistics from the CBC about the average prices of different kinds of homes in Toronto (as of April 2021):
An explanation for this astronomical uptick was summed up nicely by Jason Markusoff in Maclean’s Magazine:
“Far from the recessionary crash many experts predicted, a brew of low interest rates, family savings that piled up during lockdowns and the rise of remote work have led to stretches of record-busting resale activity and prices.”
Alongside these circumstantial events is a historical wealth transfer passing close to $30 trillion down to the next generation – many of whom are the country’s first-time home-buyers.
Put together, these factors have given an unhealthy percentage of the population the financial resources to engage in outrageous bidding wars. And that’s what’s driving the spike in Toronto/GTA home prices.
How much is a down payment?
Canadian down payment requirements currently sets the average required down payment for a detached home in Toronto at $280,569.90 (based on the previously mentioned average prices). If you put less than 20% of the purchase price down, you'll be required to have mortgage loan insurance. This is making many hopeful Toronto homeowners very nervous, it’s also pushing them into more prudent approaches to saving and finding money for their down payment.
Finding a mortgage lender as a first-time homebuyer can be daunting. Compare prices from lenders across Canada quickly and easily with Insurdinary to find the right lender for you.
How to save for a house – intentionallyLook at your current monthly bills and see where you can trim your electrical or water usage. If you still drive regularly (or when you begin again), look at your gas bills and see where you can cut back on driving and maybe get a few more steps in. And take a close look at your takeout bills. Before you know it, you’ve got an extra $350/month banked, which is $16,800 in four years – 6% of what you need – just by curbing three things.
If you’re on the younger side of adult life – and especially if you don’t have kids – it’ll be tempting to want to get on a plane and go somewhere after the last year we’ve had. But as an intentional saver, you’ll remind yourself that a $14K vacation to Europe will also represent 5% of your down payment and probably think twice.
Find money opportunistically
From a revenue-generating perspective, it’s in the federal, provincial and municipal government’s best interests to create more homeowners. In addition to property taxes, the average owner of a detached house in Toronto will generate roughly $14K of commerce in home maintenance (1% of the purchase price).
To that end, first-time buyers have two unique financial benefits available to help make home ownership more affordable out of the gate:
First-time home buyer grants
The First-Time Home Buyer Incentive (FTHBI) is a shared-equity mortgage with the federal government that pays up to 10% of the price of your home. This means you’d have to come up with less of a down payment.
The program essentially acts like an interest-free loan. If the government kicks in 5% for you to buy the house, you pay them back 5% of your sale price. The difference is the program’s profit, and part of how it can continue to exist. Of course, the con is that you would own less of your home and pocket less at resale.
Two recent updates to the FTHBI are specific to Toronto (and Vancouver and Victoria):
- The maximum eligible household income has been raised to $150,000, up from $120,000
- You can borrow up to 4.5x your household income, up from 4x
These changes were made in direct response to soaring prices in those three cities, specifically. But if nationwide trends continue, these could become the standards across the board.
Using your RRSP to finance a down paymentThe Home Buyers' Plan (HBP) lets you withdraw from your registered retirement savings plans (RRSP) to buy or build a home. The current withdrawal limit (as of March 19, 2019) is $35,000.
The con here is that the liquidity of your next egg will be temporarily compromised. But, if you choose the right first property to buy and sell it at the right time, you’ll more than make up the difference, even with all the taxes and fees you’ll have to pay as part of the sale.