Yes, it’ll sting to save your first down payment: ways to survive the pain


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Toaster oven cooking, a break to party: creative sacrifices allowed two professionals to find their first home

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When much of the noise generated by the Canadian real estate market is about above-asking selling prices and inflated mortgage balances, it can be easy to lose sight of what remains the biggest challenge for many first-time buyers. house: save a down payment.

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Down payments in Canada start at five percent of the sale price, rising to 20 percent for homes that sell for $ 1 million or more.

Here’s an example of an intimidating down payment, based on the Canadian Real Estate Association’s September average home prices:

  • Across Canada – Average price of a house: $ 686,650. Minimum deposit required: $ 43,665.

In provinces where much of the country’s real estate is sold, the numbers are even higher.

  • Ontario – Average price of a house: $ 887,290. Minimum deposit: $ 63,729.
  • British Columbia – Average price of a house: $ 913,471. Minimum deposit: $ 66,347.

That’s a lot of money for most people to save, especially when inflation and the ever-increasing cost of living outpace wage growth in Canada. But your dreams of home ownership don’t have to crumble when they inevitably collide with reality.

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In fact, a math with your true financial situation could do more to get you into your first home than anything else this side of a big check from a cash-strapped parent. If no one is around to help, you’ll have to get creative to save enough for one of the biggest expenses in many people’s lives.

Proof that we can do it

Jordan King and Evan Ungar, the millennial real estate investors behind Toronto-based venture capital firm TUK Capital, each bought their first property about six years ago. Since then, prices have become supernovas, but King and Ungar believe first-time homebuyers, even those who are just stepping under them financially, may find – “carving out” could be more precise – a path to home ownership.

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“It really comes down to creativity,” Ungar says.

But don’t kid yourself. Creativity won’t get you too far unless it comes with sacrifice, responsibility, and commitment. If that sounds like preparing for a marathon, it’s because saving a down payment can be a long, drawn-out job in reaching your ultimate goal of owning a home.

Ungar and King have suggestions for newbies ready to take on the potentially daunting task of building up their capital.

1. Don’t just set a budget. Stick to it.

Saving a large amount of money requires focused and disciplined spending. To know what you could possibly be wasting your money on, you need to write a detailed budget.

Before seriously considering saving his first down payment, King regularly ate in restaurants and partied, spending hundreds if not thousands of dollars a month on what he now calls “literally nothing.”

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“If I had saved that money and reallocated it to an asset, the situation would have been much different. And that’s exactly what happened to me, ”King says. “I realized how much I was really spending on these things, and I completely changed my lifestyle. It was the best decision I have ever made.

Reducing unnecessary expenses allowed King to raise a down payment of $ 76,000 for his first purchase, a pre-construction condo. With that money paid, his mortgage payments and the increase in the value of the property, he has accumulated over $ 300,000 in the condominium over the past six years.

“When you have a budget in front of you, set it aggressively. You’ll be blown away by how much money you can put aside, ”says Ungar.

2. Sacrifice

Unless your family is busy, succeeding in an overheated market with a low supply of homes for sale is going to require some discomfort on your part. Some buyers, including King, choose to live in their homes while they save. Others do not have this option.

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When Ungar’s parents moved to Alberta while he was saving for his first property, a pre-construction townhouse in Oakville, Ont., He had $ 9,500 in his name. He knew he had to keep his costs as low as humanly possible.

So he moved into a former doctor’s office with ridiculous rent.

“I prepared my food with a toaster oven and lived in a mini-fridge,” he says. “I did this for 11 months and took my deposit out of the park.”

Ungar ended up putting a total of $ 135,000 on his $ 470,000 townhouse. Six years later, he’s worth over a million dollars.

3. Consider a property that generates income

Most Canadian homebuyers aren’t looking for investment property, but generating income by renting out a portion of your new home can make your monthly mortgage payments much easier.

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“Compensate for your expenses [with rental income] is the best financial defense you can play, ”says Ungar. “He’s a huge, huge game changer. And I firmly believe that not enough people are doing it.

Finding a home with a rental unit won’t necessarily make it easier to save your down payment, but paying five percent in exchange for a tenant who pays a significant portion of your mortgage will make homeownership a lot. more affordable for you.

Owning and living in the basement of your new duplex may not seem like your ideal situation, but with homes as expensive and hard to find as they are, consider renting out part of your property as a first step towards renting out. ‘goal of one day liquidating the only tenant in your home.

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4. Keep your expectations under control

When King and Ungar started looking for their first home, they hoped to find spacious individual properties. But they soon realized that the homes they wanted were well outside their price ranges. The only way forward was to adjust their expectations.

“If I had just waited until I had a single-family home, I would never have been able to enter the market,” King says.

You can’t get your dream home out of the door. The right property for a beginner is one that fits your budget and overall financial plan. This may mean buying a condo instead of a semi-trailer or investment property in a city where prices are low enough that you can deposit the minimum 20% required for rental properties in which you don’t live.

King and Ungar recently purchased a duplex in Sault Ste. Marie, Ontario, a small, remote market that would not have caught the attention of most buyers five years ago. But the widening of the scope of their search allowed the couple to snatch a duplex in town for $ 160,000. The 20 percent down payment was only $ 32,000.

“You can’t be on a budget and not make a lot of money at work and expect to live in your top choice,” says Ungar. “This is not how it works.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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About Matthew R. Dailey

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