If you think homeownership is in your future, it’s never too early to start saving for your down payment. However, even if homeownership isn’t in your near future, establishing good savings habits and creating tangible goals is still incredibly important and can help you stay on track. This is especially true in Canada right now (or any hot real estate market that is), where homeownership has become incredibly expensive and incredibly daunting.

First, I want to preface by saying that I feel that we are a bit house crazy as Canadians. We see homeownership as a significant financial milestone and sometimes buy-in before we’re ready. Although there are many positive reasons to buy a home, make sure you’re also looking at the negatives and potential consequences. You should be in an excellent financial situation and are sure you’re buying for the right reasons before you start the process of saving for a down payment.

I have yet to begin my first-time buying process, but I think the time will come in the next five or so years. With market prices constantly changing and new policies being put in place, I need to know my options now to plan accordingly. If that’s you, hopefully, these tips can help eliminate some worry and give you some insight into ways you can subsidize the down payment that you didn’t know existed.

How much is the minimum down payment?

First, let me start by explaining that a down payment is the portion of a home’s purchase price paid by you, the buyer, while the rest is paid through a mortgage, otherwise known as a secured loan. If you choose to take out a mortgage (nearly everyone does), you will then have to make periodic monthly payments, including interest, to your mortgage lender.

The minimum down payment requirement in Canada will depend on the home’s purchase price and will typically be between 5-20%. The higher the purchase price of the house, the higher the down payment must be.

• If the home costs $500,000 or less, your minimum is 5% of the purchase price.

• If the home costs between $500,000 to $999,999, you must put down 5% on the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000.

• For homes that cost $1 million or more, you are required to put 20% down on the purchase price.

How much of a down payment is the right amount?

The amount you put down will be different for every homeowner and based on various factors – finances, risk tolerance, preferences, etc. There are a few things to consider when deciding on a down payment. One thing is the cost of Canada Mortgage and House Corporation (CMHC) insurance. When you put less than 20% down on a home, your CMHC insurance is a requirement. This protects your mortgage lender from repayment risk, and you can choose to add the insurance cost to your monthly mortgage payments. If you can pay 20% or more, it may be worth considering to avoid this additional fee. But, a 20% down payment isn’t always the best choice.

Another thing to consider is the opportunity cost of putting more money into your home and taking money out of other assets — like investments. Some finance experts will recommend putting down as little as possible so that you can instead invest that money in the stock market and earn more than the interest rate on your mortgage.

With interest rates so low right now, it’s something to consider and is worth discussing with a professional. The most crucial step is to determine how much of a mortgage you can afford, which will heavily factor in the size of a down payment you need as a buyer.

Should I be saving for a down payment while in debt?

Before I point out saving strategies, I feel like this is an important thing to note. While I don’t think you need to be completely debt-free, I do believe that it’s vital that you’ve paid off any high-interest debt before starting to save for a down payment. High-interest debt is most common in revolving debts where you pay as high as 20% (or more) while repaying down that loan. The longer you wait to pay it off, the more interest will accumulate at a dramatic rate. So prioritize paying this off first. 

Other forms of debt, such as student loans, carry a much lower interest rate at 2–6%. So, although you should still be prioritizing making payments, you may feel it more necessary to save for something like a down payment or invest in the stock market simultaneously.

How to fund your down payment:

To fund your down payment, here is a list of personal actions you can take in your financial life, along with government policies designed to help home buyers.

1. Create a savings plan

With any savings goal, you must create a viable savings plan. Have yourself a wine-fueled money date and figure out what you can sustainably put towards your down payment savings goal each month.

It’s always a great idea to automate your finances as much as possible and pay yourself first through a pre-authorized monthly contribution. This will automatically send money to your savings account, so you don’t risk spending it elsewhere. If you can’t or decide not to automate, you can also remind yourself to send the money near payday.

In terms of where to keep your money, I would recommend opening up a designated high-interest savings account. It won’t earn you much (1-2%), but that interest is risk-free. For goals under five years, it’s recommended that you avoid investing in the stock market since you don’t have time on your side to ride out any waves of market volatility.

To help boost your savings and reduce your non-essential spending, be sure to check out our previous articles titled: How to Cut Back on Non-Essential Spending and How to Control Impulse Spending and Save Your Money.

2. Increase your income

The other way to boost your savings is to increase your income. But, as someone who is a huge advocate of getting the rest you need and avoiding the damaging effects of hustle culture, I never want anyone to feel obligated to get a second job (which is what a side hustle is). You should never feel less than for setting boundaries for yourself. You know your limits best and whether your plate is currently full.

If you do feel like there may be room during your week for a few hours of additional work, there are so many ways to make extra money doing something you enjoy from the comfort of your own home. Be sure to check out this list of 48 ways to side hustle in Canada. I recently saw on Instagram that a woman made $50 a month from taste testing? Where can I sign up?

In addition, consider asking for a raise at your current company if it’s been a while. Build up a list of actionable steps that you’ve taken recently and the positive effect they’ve had on the company. Although it may be difficult given the year we’ve had, the worse they can say is no, and it will leave you feeling more prepared for your next negotiation.

Watch: How to negotiate your salary

3. Borrow from your RRSP using the Home Buyer’s Plan or from your TFSA

If you didn’t know, you could use the money in your investment accounts to help buy a home – whether that account is your RRSP, TFSA, or a brokerage account.

To borrow from your RRSP, you will need to qualify for the Home Buyer’s Plan (HBP) to take money out without incurring a tax consequence. To be eligible, you must be a Canadian purchasing a home for the first time in four years and are limited to $35,000 per person. Think of it as an interest-free loan you need to return to the account within a maximum of 15 years, or they will tax the money as regular income. For more details, check out my previous article detailing the Home Buyer’s Plan here.

If you wish to take money out of your TFSA, your options are more flexible than the RRSP. You can take out as much money as you want, and the following year the government reinstates your contribution room.

While using money in your investment accounts is a great way to help save for a down payment, make sure you’re considering the opportunity cost of not keeping that money compounding in the stock market. It’s never a good idea to put your retirement in jeopardy, so consider leaving a portion of your money in your accounts or checking to see if you have a pension plan with work beforehand.

4. Apply for the First-Time Home Buyer Incentive 

The First-Time Home Buyer’s Incentive is a government program to help Canadians purchase their first home. It essentially allows Canadians to take out an interest-free loan or mortgage from the government between 5-10% of the purchase price, depending on when the home was built.

The exciting thing about this loan is that it is a shared equity mortgage – meaning that the 5-10% repayment will depend on the future market value of the home, not the original purchase price. For example, if the house goes up in value, the repayment percentage will equal a more excellent dollar value, and if the home goes down, the value will be less. This helps protect you against any downside risk but can eat into some upside potential until you pay the mortgage off. There are essential criteria that you need to fit to qualify for the program. 

Be sure to check out this Eligibility and Savings Calculator to see if the First-Time Home Buyer Incentive may be right for you.

As a young Canadian, I’m right there with you…

As a young Canadian living in one of the hottest markets in the country, I understand if you’re feeling demotivated and helpless at your future homeownership prospects. I supported my boyfriend for nearly a year as he tried to buy his first home and got outbid by over a hundred thousand dollars in bully offers without as little as a home inspection.

It’s a crazy market we’re living in, but I think what’s most important is making sure you don’t stretch beyond your means, take breaks from searching if you’re feeling emotionally drained, and talk about your frustration with others going through the same thing.

Hopefully, these tips help you feel more confident in your options and more in control of your homeownership goals.