How much money do you need to save for a down payment? How long should it take you to save up that money? And where should you save that money? Let’s go over all of that fun stuff today as we deep dive into everything you need to know about your down payment. I’m currently in the homeownership planning stages and I’m documenting the entire process so that you know exactly what steps are required and exactly how you need to prepare financially for the biggest investment you’ll ever make. Either way, every sign points to people looking for a solid breakdown of how to save their down payment. So, let’s not beat around the bush. Most people will tell you that the best percentage to put down is 20% because if you can’t, you are responsible for mortgage insurance fees or CMHC fees. Something to note, though, is that after doing research and speaking with some financial experts, putting less than 20% down can actually save you money in the long term, even after you add in the mortgage insurance premium fees. I found the sweet spot to be 10% because those who do get the most significant reduction in mortgage rate premiums. If you want to read more about how I made this decision, click here: https://www.zolo.ca/news/20-percent-down-payment That point though leads us to the next step in your action plan...which is gaining perspective on how much money you need to save. This number is based on the following factors: Household income of all applicants Personal monthly expenses (including all debts owed) Housing expenses: Property taxes, condo fees, utilities The main concern for lenders is your debt-to-income ratio, which is a measure of how much of your monthly earnings go towards debt repayment. Typically, mortgage lenders need this ratio to be below 43%. Anything higher than this can be a risk to both parties — especially in cases of job loss or health emergencies. Let’s look at an example. If you pay $1,500 a month for your mortgage, $250 a month for a vehicle loan and $250 a month for credit card debts, your monthly debt payments ring in at $2,000. If your gross monthly income is $6,000, your debt-to-income ratio is 33% — which means you are A-OK to move forward with a mortgage lender. Another factor is your timeline. How long do you need and have until you buy a home? Less than 5 years If you have less than 5 years, you should have your money easily-accessible, but also keep it in a safe place. While investments can be valuable, you also need to have the right amount of money available for a down payment and the ability to access that money at any time, which means it’s quite the risk to keep this fund in stocks or locked up in GIC’s. Instead, stick to guaranteed investments, shop around, Google the highest savings account rate and find out about financial institutions with the best offerings. Although high-interest savings account doesn’t provide a great return, they are a safe and conservative place to store your down payment fund for the short-term. Do your research to find a financial institution that has a higher rate of return if you still want to maximize your earning potential. More than 5 years If you have more than 5 years, you have a lot more flexibility with where you can store your down payment fund. But something important to consider in this situation is your personal risk tolerance. Most financial experts would share that you should have some of your money in that equity building investments. In the long-term, this should give a higher return than the 2 or 3% you’ll get in guaranteed rates. On the flip side, be prepared for the reality that It might be less. Part of investing is that you have to be able to come to terms with that. Now that we’ve gone over the very intense details, let’s simplify how you will save money for a down payment in 5 easy steps: 1. Start with a clear goal 2. Prioritize this financial goal 3. Boost your income 4. Choose the right tool to save your money 5. Start saving money by setting up automatic contributions into the account of your choice! ------- Follow us on social media Twitter: https://www.twitter.com/zolocanada Facebook: https://www.facebook.com/zolocanada -------------------------- Zolo is one of Canada’s most popular online national real estate marketplaces. Each month more than six million home shoppers start their real estate search using Zolo. These users get the data and resources needed to make better-informed property decisions. --- To learn more about the Canadian real estate market, subscribe to our channel to stay informed.