There is no experience quite like buying a new home in Canada. It is a long-term savings goal that, in today's market, can be your life's best investment. But how to save money for a house depends on your unique circumstances. And every buyer has to exercise proper planning, consistency, and discipline.
The current state of the Canadian real estate market
Proper planning prevents poor performance.
Unless you live in Calgary, the homebuying market shows signs of stabilizing. Toronto's housing market is experiencing a slowdown. However, there has been a 1.5% increase in national home sales growth compared to last month.
Additionally, there has been a 4.4% increase in home sales growth compared to last year. Alberta and British Columbia have offset sales in the Greater Toronto Area (GTA).
Interest rates remain high by recent standards. According to our analysis, the prime rate of 7.2% will stay the same for now. However, there is a possibility that it might decrease either later this year or in 2024.
How much should I save before buying a house in Canada?
How much you should save before buying a house depends on the following:
- The price of the property you are buying.
- How you intend to pay.
- Any required deposit.
- Your down payment amount (5% is generally the minimum; 20% will help you avoid paying for pricey mortgage insurance).
- The mortgage terms (if you are taking out a home loan).
- Closing costs.
- Anticipated first-year property tax cost.
The more you save, the better. You must also consider a home inspection, monthly home insurance, utility setups, moving, and other homebuying costs.
Since everyone's situation varies, set aside a couple of thousand dollars for unexpected expenses that may come up. If you don't have any unexpected bills, you'll have extra money for an emergency fund or to save and invest.
Tips for how to save money for a house
Proper planning prevents poor performance. That statement speaks for itself. When you buy a new home, the saving process could start years in advance. Getting a mortgage can take two to six months or longer, including the application and approval process.
When buying a property, time is your friend. Do not rush into the process if you do not have to. Rushing can lead to errors, conflicts, or mortgage problems due to funding rules.
The following tips will help you save money for your new home:
- Prioritize your savings: If you want to buy a new house, saving for it is now your priority. Identify areas where you can reduce spending and redirect those funds into your savings. Creating a budget can help you identify these areas.
- Reduce high-interest debt: Credit cards, store cards, credit lines, and large loan amounts can hinder your savings. Paying off these debts first can free up more money for your new home savings.
- Take advantage of government programs: The Government of Canada offers several programs to help homebuyers save for their down payment. Some examples are the TFSA, RRSP (withdrawal program), and FHSA. The First-time Homebuyer Incentive is another excellent program.
- Automate your savings: Set up automatic transfers from your checking account to a dedicated savings account for your new home. This can help you consistently save without having to think about it.
- Cut expenses: Look for ways to reduce your spending. These may include switching to cheaper entertainment options, bundling utilities or other services, or lowering transportation costs.
- Increase your income: A side hustle could significantly (and quickly) increase your savings. Consider taking on another job or selling items you no longer need to boost your savings.
Remember, being consistent and disciplined is critical. However, here is some good news: It only gets easier once you save a few thousand dollars. That is because it gives you peace of mind and options, lowering your overall stress. This ties back into our writing about financial well-being and its impact on your overall health.
Can I save $100,000 in 10 years?
The short answer to this question is that it is entirely up to you. Only you can decide how much you save. However, we can assist you with thoughts on investments, compound interest, and different ways to reach your financial goals.
If you initially invest $5000 and contribute $675/month for ten years at a conservative 3% (with a 0.5% interest rate variance), you can save nearly $100,000 in 10 years (interest compounding annually). $99,577.00, to be precise. TD Bank has a great compound interest calculator.
Various investment products (such as a Guaranteed Investment Certificate (GIC), which is similar to a bond) have 3-5.5% returns. You can even invest in these products through your TFSA, meaning any upside will be tax-exempt.
There is no single right way to invest and save money for a house. Financial advisors and other finance professionals can help you select the most efficient way to save.
Should I buy a house now?
Our response to this may not age well (because interest rates can always go up). But our view is that interest rates are currently quite high, and there is potential for rates to fall throughout 2024. Canada's real estate market is getting more stable, except in Calgary. It might be better to keep saving and wait for better interest rates.
That is not to say that if the right opportunity presents itself, you shouldn't explore it. Often in high-interest markets, there are fewer buyers. Fewer buyers usually mean that sellers might be willing to negotiate. It is a matter of taking your time, not rushing into the market, and fully exploring your options.
Be patient. Everybody always wants to be moving forward quickly in life. But large purchases, especially those on credit, should be the exception. Buying a new home is a major decision; getting it right is critical.
A financial advisor or other professional can help you determine how to save money for a house. This advice will tell you how much to save, what investments to make, and when to do it. There are investments for every risk appetite; it is a matter of determining what suits you.
But all future Canadian homeowners must stay focused, contribute to their new home savings regularly, and avoid being spendthrift. You should take advantage of related government programs (especially the FHSA), cut expenses, and wholly understand the power of compound interest. Reducing debt and increasing income are essential to financial health and well-being.
You should also remember that buying a home requires inspections, maintenance, home insurance, and other (sometimes forgotten) costs.
Whether you're looking to save money, invest with a TFSA, or travel Canada on a budget, Creditpicks has something for everyone. We are a personal finance blog written for Canadians by Canadians. All our content is free for readers. We receive small commissions from chosen partners who provide different products and services.
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