One of the first steps of buying a home is saving for the down payment. Typically, in order to qualify for a mortgage to buy a home you will need to have between 3 and 20 percent of the sale price in cash. The larger your down payment is, the less your mortgage will be, so the sooner you begin saving, the more you will have for a down payment. Saving for the down payment may seem like a fairly simply process, but there are things you can do to make the process less stressful and maybe even quicker. Here is an easy to follow five step process to help you get started saving for a down payment for your first house in Toronto.
1. Determine How Much to Save Each Month
A general rule of thumb is to put aside about 28 percent of your monthly income to save for a down payment. For instance, if your monthly income is $4000, you would have $2880 per month for your current housing expenses and $1120 to put aside for the down payment. One of the best ways to have a better idea of how much you will need for future house payments is to talk with a mortgage lender about average mortgage rates for the price you are intending to pay. This will give you a clearer understanding about how much you will need to save for a down payment as well as what you can expect to pay for housing.
2. Determine How Long it Will Take
Once you have a better idea of how much you will need to save, you’ll need to determine how long it will take you to save the full amount. For instance, if you plan to buy a home for $100,000 and you need a 20 percent down payment, you will need to save $20,000. If you want to buy a home in two years and the amount you have been saving for a down payment on your first house in Toronto is $1120 per month, you will have $26,880 saved, which will provide you with the down payment as well as some for extra fees.
3. Develop a Budget
It is extremely important to create a realistic budget. You will be setting aside a large amount of your monthly earnings to save for your down payment, so you will need to monitor every dollar you spend. If it becomes too difficult t live on the amount that you have setting aside for housing expenses, you will need to find a way to add additional income to your budget. It may be stressful, but getting a side job will allow you to achieve your goal and maybe even allow you to achieve it quicker. When creating your budget, be realistic in what you make and what you must spend and keep in mind that emergencies happen so allot for them.
4. Pay Down Debt
It may sound ridiculous to pay down debt when you are attempting to save for a down payment, but it’s really better. For instance, if you are currently paying for 20 percent interest on a maxed out credit card and are only earning 2 percent interest on a savings account, you’re paying 18 percent more than you are earning. Paying down your debt as quickly as possible will go a long way towards saving for a down payment on your first house in Toronto. Paying off debts will also improve your credit scores and you won’t be dragging a lot of heavy debt with you when you do purchase a house.
5. Choose the Best Method for Saving
The money you are saving for a down payment on your first house in Toronto should come from low-risk avenues, such as a savings account. It may seem like a good idea to try to double your money by gambling or investing in stocks, but these are high risk investments, so you may end up losing more than you already saved and it will take you longer to save for the down payment.