Ready to buy a house? Ideally, you should have started thinking about how to speed up your home purchase for at least 2 years before buying. Some of these considerations include the calculation of mortgage down payment, and how much you can afford to pay to cover for monthly mortgage payments (which should not exceed 30% of your monthly income).

For government backed mortgages in the US, your minimum down payment can be as low as 3.5% while minimum down payment in Canada is usually set at 5% for a home that’s worth about 500k. Notwithstanding, paying up to 20% of the property’s worth as down payment eliminates the need for payment of CMHC mortgage insurance in Canada and also will increase your mortgage options in the US. It also leads to lower monthly mortgage payments.           

How Much Mortgage Can You Afford?

Saving for your down payment requires a highly practical approach. First, you need to decide how much you can afford to spend on mortgage after making your down payment; in proportion to your total household income. For example, if your total household income is about $100k annually, you might not be able to afford the down payment and mortgage for a house worth $1M, and should stick with a house valued at about $500k or less. This way, if you make a 20% down payment of $100k from your savings, you would be able to comfortably make monthly mortgage payments.

High household needs can also prevent you from being able to use up to 30% of your income for the monthly mortgage payments of the kind of house your family needs. For example, if you have 3 kids but your calculated mortgage affordability can only get you a one bedroom condo, it’s safe to reconsider buying a property at this point. It might be better to make such a decision when your income increases or your household needs drop.    

However,  if you want to know how to save better to be able to make significant down payment on a property, the next section is for you!

5 Savings Tips to Help Make a 20% Down Payment on Your Property

Using the example of a $500k property, the minimum down payment at 5% is $25k but as earlier said, you should aim for a 20% down payment of $100k. to bring your goal closer to this value, you could:

1.Save Tax-Free Funds in Your Pension Account

This is a super smart way to save, as funds in your RRSP or IRA account attract little to no tax on the pension income. Taking money from this account for down payment on your home is one of the governments’ first time home buyers incentives. For example in Canada, using the Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP, which can be repaid over a 15-year period.   

2.Cut Down on Cost-Intensive Purchases

Make a 2-year projection before making your down payment, and within this time frame, you should be ready to cut down or totally avoid expensive purchases like a new car, new furniture, or luxury vacations. You should also know that most of the time buying a used car can help you save more money. You would need a lot of self-discipline if you aren’t already used to this sort of lifestyle. 

3.Scrutinize Your Monthly Expenses

When making such a crucial decision as buying a property, non-essential purchases should be eliminated from your day-to-day expenses. For example, if you could get a cheaper phone plan or reduce the number of times you eat out in fancy restaurants every month, it’d go a long way to reduce your monthly expenditure.

4.Consider Using a Cash-Back Real Estate Agent

One other way to save on your home purchase is choosing the right kind of real estate agent. In this particular scenario, specifically choosing a top real estate agent who is also willing to pay cash-back (paying part of his/her commission to you after closing on your property), comes highly recommended. However, ensure there’s documented evidence to show that such an agreement was reached prior to the purchase of your home. Trust is also a vital part of these transactions.  

5.         Ask for a Raise!

Plainly put, if you’re putting in your best efforts towards the advancement of your company and think you’re due for a raise, ask for it. The easiest way to save more money is to have an increased cash inflow. Don’t be scared to ask your employer for a raise- after all, the worst case scenario is that you’d be turned down. Even if this happens, at least, you would have created the mindset of a higher expectation in the mind of your employer. 

Conclusion

Mortgage payments require pre-meditation, as they would be made over a lengthy period of time (e.g. 30 years). Saving tax-free funds in your pension account, cutting back on expensive purchases, reducing your overall monthly expenses, using a cash-back real estate agent and increasing your income by asking for a raise are helpful tips for making up to a 20% down payment, which then reduces your monthly mortgage payments.