Getting Your Foot in the Door.
Develop a culture of saving
The first priority for you should be to develop a culture of saving. This not only helps you in budgeting and planning for the future, but also to satisfy banks and other lending institutions that you have a clear commitment to save.
Start an automatic saving plan
Saving for a down payment can be a financial challenge but it's a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You'll be surprised at how much you can save and how quickly the "pay yourself first" approach adds up.
Borrow from yourself
The federal government's Home Buyer's Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it's not locked-in and the money has been in the RRSP for at least 90 days. You have to repay the loan in installments over the next 15 years to avoid a tax hit.
Take a holiday from tax
If you open a new Tax-Free Savings Account (TFSA), you won't pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
Review your mortgage options
Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.
You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
Get into a starter house
Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first home doesn't necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" projects where you can add more value to the house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.
In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into to your dream home.
Buying your first home is an exciting process. After all, your home could be the largest asset you'll ever own. Being able to finance most of its cost will take a load off your back in the future.
