Unless you just won the lottery and you can afford to purchase a condo in cash, you are probably like the majority of people in Toronto who will eventually need a mortgage. Unfortunately, qualifying for a mortgage will most likely require a significant down payment and to save that amount of money might mean sacrificing a few things. One thing you should consider is how living at home longer might get you a home faster!
Let’s look at minimum down payments first so that you can get a full breadth of the situation.
We looked at the minimum down payment requirements for a home in a previous article, but to refresh your memory:
A home that costs $500,000 or less will require a minimum 5% deposit of the purchase price.
A home that costs between $500,000 to $999,999 requires 5% of the first $500,000, and 10% for anything above the purchase price above $500,000.
Finally, a home that costs $1 million or more will require a minimum deposit of 20% of the purchase price.
Let’s presume that you are about to buy an existing one bedroom condo in the heart of downtown Toronto for the bargain basement price of $500,000.
According to the above mortgage requirements, the minimum deposit required to purchase this property is 5% or $25,000, but you should know that generally, it is best to put down as much as you can because the more money you put down up front, the less your mortgage and interest will be, which means lower monthly payments.
Your aim should always be to put down a minimum of 20% when purchasing a home and there is one big reason for this. It’s called the Canada Mortgage and Housing Corporation (CMHC). If your down payment is less than 20% of the total price of the home, then the mortgage needs to be insured by the CMHC which means that you will need to pay an insurance premium for the life of the loan. This just means more money out of your pocket each month and less money going towards enjoyable things like eating out or taking vacations!
A 20% deposit towards a condo that costs $500,000 equals a down payment of $100,000! I know, I know, it sounds daunting, but you can do it!
The best financial decision you can make might be to consider this one option:
LIVE AT HOME AND SAVE YOUR MONEY
Let’s face it. Living on your own is expensive. Rent, groceries, cable, nights out on the town. These costs can add up and it can definitely make saving money to buy a condo almost impossible. One thing you should consider doing in order to save money faster is to live with your parents. Here’s how you can do it.
Save on Expenses
Take the money that you would normally be spending on Rent/Mortgage, renters insurance, utilities (gas, internet, electricity) and put it into a high-interest savings account instead, or better yet, talk to a financial planner about where you should invest it. Practice making mortgage payments now so that when the time comes to actually do it, you will be more than ready!
TIP: Put the money in a separate bank account that you can’t access via an Interac machine. This will save you the temptation of accessing the funds when you want to buy everyone in the bar a round of drinks.
Pay Off Your Debts
Living at home means you can put more money towards your student loans. The faster you pay off your debts, the quicker you can put more money towards what really matters to you and that’s living in a place you love.
Put your Money in a Home Buyer RRSP Plan
Not paying rent allows you to put your money into something that can work for you. Consider putting your extra money into the Home Buyer RRSP Plan. First-time home buyers are able to take up to $25K from their RRSP tax-free to put towards their down payment to purchase a home. The catch is that your withdrawal will count as a loan, rather than a regular withdrawal — the Canadian government gives Home Buyer Plan participants up to 15 years to put the money back into your RRSP.
Take Risks
Start a business. Try different jobs. Living at home gives you the ability to take occupational chances without the pressure of paying rent on a place that you can barely afford. Mentally, the less stress you have means that you can put more energy and passion into the things that will make you money.
Do you have any questions about saving money to buy a condo in Toronto? Call, text, or email me anytime!
