Want to Buy a Home or Investment? Seven Ways to Save for Your Down Payment

Seven Ways to Save for Your Down Payment

Though some lenders now offer 100% financing on mortgages, there are high interest charges and insurance premiums. SAVE YOUR MONEY! Very few things in life are quite as exciting as buying your first home. It's part of a life's dream. And although home prices keep rising, ownership is within the realm of possibility, even for those who don't make large salaries. Of course, the larger your down payment, the lower your monthly payments. And if you can come up with 25 percent, you avoid paying expensive Mortgage Insurance Fees. Here are seven ways to begin now on your mission of owning your own home: Step 1: Get with the program The first step toward saving enough money for a down payment is a psychological one—desire. You (and your spouse or friend) must REALLY want to buy a house. With enough passion for ownership, you'll find yourself motivated to save every penny you can. To boost your desire, spend a weekend looking at houses or condos within what you think is your price range. Saving will be a whole lot easier if you have a vision of a two-bedroom, two-bath house with white shutters on Elm Street dancing in your head. This vision will make it easier to say no to shopping sprees, buying a second car or going on an expensive vacation. Take pictures of your favourite properties and tape them to your refrigerator door or better yet, prop them up on your desk next to your cheque book. Step 2: Review your budget Or, if you're budget-free (but who is?), draw one up. Then list those areas where you can cut back on spending and earmark that money for your special Down Payment Account. Yes that's right, create a DOWN PAYMENT ACCOUNT (DPA). Don't have that accessible by Interac and make it unavailable for withdrawal. Ask your bank or financial institution about a high interest savings account and don't make it available! That's most important. This is discussed more in STEP 3.  Don't cut out everything that's fun ... you still need to enjoy life before the house, but do start to be more cautious. Here are some savings tips to get you in the right frame of mind. Add your own to the list. Drive at the speed limit. Traveling at 120 KM versus 100 KM increases fuel consumption by a whopping 20 percent. Clip coupons. If you save $25 a month with food and drug coupons, that turns into $360 a year. Take your lunch to work! If you're spending $8 a day on a sandwich, drink and dessert, that's $2,000 a year (assuminng you've taken two weeks out for vacation). That's not counting those in-between snacks of chips, pretzels, iced cap, etc. Figure out what you spend per day on lunch then on the days you brown bag it, deposit that amount into your newly created DOWN PAYMENT ACCOUNT (DPA). Carpool. Or, walk, bike or take the bus to work. Taxis are a guaranteed way to spend $5 in five minutes. Talk less. Make sure you have the cheapest calling plan. And if you make a lot of long distance calls, get a prepaid phone card. Skip the babysitter. Set up a co-op arrangement with friends and neighbours. Stop (or limit) your smoking and/or limit your coffee purchase from Starbuck's or Tim Horton's. Did you know that by quitting a pack-a-day habit will save you about $2,000 a year? OR, if you skip that extra 2 cups of Timmy's that's $1.50 and you've saved $1,095 a year! Or, PRETENT that you smoke or drink that extra coffee and deposit that money into your Down Payment Account (DPA). Cut back on dining out. Send the amount you save to your Down Payment Account (DPA) Never open a catalogue or flyer. Toss them out immediately!! If you peek inside you're bound to find something you like and chances are you don't really need. Make a shopping list. Be prepared, plan ahead and don't buy stuff you don't really need when grocery shopping. Don't carry much cash. If you leave your ATM card, your credit card, your debit card, your cheque book, and most of your cash at home, it will be hard to spend much. Instead, carry enough cash for the day plus one blank cheque and for emergencies, several traveller's cheques. Step 3: Open a Down Payment Account You'll need a special account to hold your savings, such as a high-yielding bank savings account that you can't easily access. Do NOT put this account on your Automatic Debit Account and make sure that the withdrawal is not available on a cash machine either. Make withdrawal only available by the teller so when you see that long line up, you'll be discouraged from make any premature withdrawals until you've saved what you need to save. Bottom line: You'll be less apt to use this money for something other than your soon-to-be new home! Step 4: Tell your family If your parents or other relatives send you presents for your birthday, anniversary or the holidays, they might instead contribute to your Down Payment Account. Don't insist—some parents prefer to shop for special gifts for their kids. However, it won't hurt to let them know about your goal. Step 5: Go Automatic If you don't see it, you won't spend it. Arrange for a certain dollar amount to be taken out of each paycheque and automatically transferred to your savings or money market account at your bank or credit union. If you're self-employed, set up the same type of plan at your bank and have money transferred each month from chequing to savings or to a mutual fund. Step 6: Reduce credit card debt Always pay at least the minimum due each month on your cards to avoid high interest rates. Better still: Pay each bill in full and completely avoid high rates on unpaid balances. And make certain you mail the cheque, do bill payments online or transfer the money well in advance of the payment date. A growing number of credit card issuers are hitting customers with late arrival penalties. TIP: Ideally, you should wipe out credit card debt as quickly as possible. Begin by paying down the credit card with the highest interest rate first. Step 7: Keep on a-paying When you pay off a car loan or education loan or get rid of a credit card debt, continue to write a cheque for that same amount every month—but put it into your Down Payment Account (DPA). You've learned to live without that money, so now you can sock it away.