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Deciding to buy your first home is an exciting and fun time. But saving for your first downpayment, which is a one-time cash payment you provide at the closing and is typically 20 percent of the home’s cost, can be challenging and intimidating. However, with a little financial homework, time, and commitment the process of saving for your down payment will go smoothly. Below are five tips to help first-time home buyers save for a down payment.

1.Determine What You Can Afford and Plan a Budget for Saving for Your Down Payment

Before you start looking for your first home, it is important to determine exactly how much you can afford monthly for the mortgage and interest. It is essential to also consider homeowners association (HOA) fees, taxes, insurance, utilities, maintenance, and other bills that come with home ownership. If you are a two paycheck family, it is often recommended you base this on one paycheck. For instance, if you can afford  $1200 a month in mortgage and interest, then based on a 30-year fixed rate mortgage, with an annual interest rate of 3.85%, your home will be valued at about $255,000.  Once your determine the value of the home you can purchase, you can calculate the 20 percent down payment.  The next step is to create a monthly budget, including a designated amount to save towards the down payment.  Finally decide your needs for a home such as location, size, and features, like transportation and schools.  And, consider cutting out big expenses such as vacations and a new car, and designate these saving towards the downpayment.

2.Establish a Separate Savings Account for Your Down Payment

Establish a separate savings account for your down payment. This designated account will reduce the temptation to spend the savings.  Automatic monthly contributions to the savings account is also highly recommended.

3.Commit Your Windfalls to Your Down Payment

To speed up your savings towards the down payment, invest your extra income, such as your tax refund, bonuses, gifts, etc., to your down payment.  This extra cash will significantly increase and quicken your savings towards a down payment.

4.Reduce Your Monthly Bills by Shopping Around or Downsizing

Reduce your monthly significant expenses by shopping around for better rates for your car insurance, renter’s insurance, health insurance, cable, the Internet and cell phone plan. Also consider a smaller, cheaper apartment or – temporarily –  move in with a helpful relative. And, see if you can lower your monthly payments on your car and student loans and credit cards, by refinancing.  Then put the savings towards the down payment.

5.Investigate Government First – Time Home Buyers Assistant Programs

Because buying your first home is one of the largest investment in one’s life, the Canada’s Economic Action Plan created the First-Time Home Buyers’ (FTHB) Tax Credit and expanded the Home Buyers’ Plan (HBP).  Both of these programs provide first-time home buyers benefits towards their dream of homeownership.

• The First-Time Home Buyers’ (FTHB) Tax Credit helps first-time homeowners defer the costs associated with purchasing a home, such as legal fees, disbursements, and land transfer taxes.
• The Expansion of the Home Buyers’ Plan (HBP) helps first-time homebuyers gain access to their RRSP savings to purchase or build a home.

The hardest step for most first-time home buyers is saving for a down payment.  However, with the current housing market, the job market improving, and interest rates still historically low, it’s an excellent time to purchase a home. Additionally,  building home equity is a good way to build wealth over time.  For more information on tips to help first-time home buyers save for a down payment visit Falconcrest Homes.