How Did You Save for a Down Payment?

April 17, 2018

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So, you’re ready to make the leap from renting into the wonderful world of home ownership. There’s no doubt that buying a home is a major life milestone—one that brings no shortage of tough decisions along with it. Should you buy a condo or house? City or suburbs?

But let’s be honest—before you can even think about where the couch should go and what colour to paint the walls, how the heck do you manage that down payment?

Your down payment will be a huge factor as you get pre-approval on a mortgage amount. You’ll need a minimum of 5 percent of the purchase price—and the more you can put down, the more you can save in the long run. It’s a big financial commitment.

But how do first-time homebuyers save up that much dough? We asked three sets of new homeowners to find out how they made it happen. Meet Jessica and Jesse, Amanda and Matthew, and Carly and Hugh.

What was your down payment savings strategy?

Jessica & Jesse: Our strategy was long-term—and slow and steady. We knew we wanted to buy a home, so we started saving as soon as we both had jobs. It was small amounts like $100 per paycheck, but that added up over several years.

Amanda & Matthew: We knew our incomes would be fixed for the short-term, so our strategy was to limit unnecessary lifestyle expenses and begin a pattern of consistent personal savings month-to-month. To do this, we first created a spreadsheet to track expense categories to identify opportunity areas. It was surprising to see how much was spent on non-essential items. We also opened a low interest line of credit and transferred any and all credit card debt to lower monthly interest payments.

Carly & Hugh: We knew that if we could save 20 per cent for our down payment, we could avoid the added expense of having to pay for mortgage default insurance. Saving for a few years directly out of university was ideal because we essentially set aside our income tax rebate each year. It was money we weren't depending on, which made it easy to put it away for a mortgage.

As a medical student, I also had access to a personal line of credit. Our mortgage lender allowed us to use the line of credit for half the down payment, as long as we could prove we had the other half saved up. Although borrowing $20,000 for a down payment wasn't ideal, combined with our $20,000 we saved up we were able to avoid the mortgage default insurance.

Did you make any lifestyle changes in order to save?

Jessica & Jesse: The only lifestyle change we made was eating out and going out less. We made an effort to limit it to one night per week and we invited our friends over instead of going out to the bars, which can really add up.

Amanda & Matthew: We made a number of adjustments in our monthly spending to help. The major areas for savings were food, entertainment, and travel expenses. The cost of food and alcohol at a restaurant 1–2 times per week can really add up each month depending on your choices. While an “all or nothing” approach is not recommended for balance, setting limits allowed us to quickly save without much pain. In addition, we didn’t book any out-of-province travel for our savings period and instead decided to explore our own province.

Carly & Hugh: No major lifestyle changes, but we did make sure to include our tax rebates in our down payment saving, instead of spending it on fun things like vacation.

Any tips for someone that’s looking to get started on saving for a down payment?

Jessica & Jesse: Take a hard look at your spending habits and see where you can save. A simple switch like bringing your coffee everyday instead of buying one could be the $50 a month you need to be in a house one year sooner than you thought you would be.

Amanda & Matthew: Find out where you’re really spending your money and track your current expenses to the dollar. Then set a reasonable savings goal and put a timeline on it. It’s easier to accept an aggressive 12 months of “tightening the belt” if you know there’s a positive end in sight.

Carly & Hugh: Even if you’re just getting started with your saving, talk to a financial expert. They can help you come up with a strategy and set a timeline that works with your budget. It can help make saving for that down payment feel a little less daunting!

Have more questions about mortgage options, saving for a down payment, or any of the home-buying basics? Check out our First-Time Homebuyers Guide or read about the top 5 lessons from first-time homebuyers.