Tips on Saving for a Real Estate Down Payment

For many first-time home buyers, the thought of saving a substantial amount of money for a downpayment can seem overwhelming. But there are several ways to make a down payment a lot easier and have you into your new home faster than you’d ever imagine. Published in the New Home Buyers Guide January 19 – February 02, 2007 on Page 22.

Invest in yourself first
No doubt you think that paying your monthly bills is an important financial commitment. Like most people, you may also consider savings or investments to be purely optional.

However, if you can commit yourself to paying everyone else, you can make the same commitment to yourself. Set up a savings or investment plan and start making payment to it, just as you do for other creditors.

Re-organize your finances and you may find the money you need to collect for the purchase of your first home. Often times, finding some extra money for savings is as easy as reorganizing your budget. Managing your money a little differently perhaps by consolidating your debts, can sometimes free up the extra money you need.

Consider tapping into your RRSPs
RRSPs are a good way to secure your financial future while enjoying the tax benefits today. As a first-time home buyer (or if you haven’t owned a home in the previous five calendar years) you may qualify for the government approved RRSP Home Buyers Plan that allows you to use your RRSP savings toward the purchase of a home. If eligible, you and your spouse may withdraw up to $20,000 each from funds that have been in your RRSPs for at least 90 days.

The funds aren’t taxed as long as you repay the total amount to your RRSP over the next 15 years. Your payments don’t have to start until the second year after the initial withdrawal.

Use GICs to help you save
GICs offer you competitive rates of return and offer a safe, secure way to grow your savings. For flexibility, you can choose from a variety of terms. Choose non-cashable GICs and your money will be securely tucked away for the term you choose and you won’t be tempted to dip into it.

Another government approved program allows you to have less tax deducted from your regular pay cheque. You’ll benefit from a tax refund each month rather than one lump sum next year.

Every month you’ll have extra cash on hand to add to your downpayment savings on your new home or real estate property and then once you own your home, you’ll be able to make your regular mortgage payments or contribute to your RRSP more easily.

First Time Home Buyer Info

The first time real estate home buyer property purchase tax exemption. First time buyers are exempt from paying the property purchase tax under the following conditions:

1. Price of real estate property is $325,000 (Lower Mainland of Vancouver) or less. For homes between $325,000 and $350,000 an exemption is available on the sliding scale. Above $350,000, there is no exemption available.
2. Mortgage loan to value ratio is 70% or higher.
3. Mortgage term must be for one year or longer.
4. Mortgages held by parents do not qualify.
5. Maximum amount of real estate principal buy down in the first year is $13,000, in the Lower Mainland.
6. Home buyers must not have owned a house anywhere in the world before. If only one client qualifies then only their portion of the home purchase will be eligible for the exemption.
7. Home buyers must have been a resident of B.C. for at least one year, or have filed tax returns as a resident of B.C. for two of the last six years.
8. If home purchasers move out of the home prior to their one year anniversary, a portion of the Property Tax will be payable.

The price and savings for this tax exemption for first time home buyers of real estate properties:
$325,000 = $4,500
$275,000 = $3,500
$250,000 = $3,000
$200,000 = $2,000
$150,000 = $1,500
$100,000 = $1,000
$50,000 = $500

For more information about Real Estate Checklists and Tips for Real Estate Investment Condos in the United States and Canada, click here.