Unlike other types of investments, real estate has a high barrier of entry (aka the down payment). Sadly, accumulating enough money for a down payment is often what separates buyers from renters.

If this obstacle stands in your way, don’t despair. We have come up with four ways for you to build up a down payment. If possible, consider using a combination of these strategies to reach your goals even faster.

In Ontario, the minimum down payment is 5% on the first $500,000, and 10% on the balance- up to $1,000,000. Contrary to what many believe, waiting to save up a 20% down payment (although admirable) is unnecessary and not always recommended.

1) SAVE UP RUTHLESSLY!

Although not “creative”, saving up involves more than putting a few dollars in a separate account each month. It means cutting all unnecessary spending and debt.  It will  require a close, honest look at your current habits.

Here are a few examples of what you should consider cutting:

• Car payments. Cars are expensive, and many of us spend way more than we should on them. If you currently have a car payment, not only will it slow down your saving progress, the payment will also lower the value of any home you could purchase.  Sell the car and buy a cheaper one, cash. Not only can you then redirect the monthly payments into savings, any profit can also be put toward a down payment. Also, consider whether you can get by with one car instead of two for a while.
• Monthly subscriptions. Spotify, Audible, Cable TV… This list will differ from person to person, but the result is the same. Although they are nice to have, these are luxuries that could delay your goal of home ownership.
• Dining out / Ordering in. This is a big one. Skip the Dishes and UBER Eats make it incredibly easy to skip the savings and eat into your down payment money! Eating out is expensive and can add hundreds of dollars to a credit card bill each month. Buy groceries and eat at home. Save the take-out for rare special occasions.
  What else can you cut out? ___________________

2) The Bank of Mom & Dad.

We realize this won’t be an option for everyone, but many parents are worried that their children will not be able to afford a home of their own. If your parents feel this way, it’s an option worth exploring. Financial help can also come from a close relative without breaking any rules. If your parents or a close relative has owned their home for a few (or many) years, they likely have built up equity they can draw on by refinancing or taking out a HELOC (Home Equity Line of Credit). The benefit is that interest rates have never been lower, and a $25,000 increase in mortgage or HELOC would likely cost approximately $105 per month.

You can also ask your parents if they opened a “Whole Life” or “Universal Life” insurance policy for you as a child. If so, it might be worth cashing the policy in for a down payment!

3) Borrow it!

This method will work for buyers looking to purchase below their approval limit. For example, if you are pre-qualified for $650,000 but want to only spend $550,000 you could borrow $30,000 as a loan or unsecured line of credit. This works by calculating the new debt in your GDS / TDS ratios. Once you’re approved for the loan, put the funds in an account where you plan to hold your down payment. Just like that, you’re all set! With this method, it’s important to speak with an experienced mortgage broker prior to applying for the loan or line of credit.

4) RSP Tax Refund.

This is perhaps the most creative approach, as it requires careful planning to make it work. Normally, one would use RSP’s they have saved up as a down payment. Canada has a program for using RSP’s as your down payment that you can read about here. This is different. Here, you will use the income tax rebate as your down payment, not the RSP’s.

Here’s how it works:

You and your partner borrow $25,000 each as a loan to invest in RSP’s.

After 90 days, you pull the money out of the bank.

You REPAY the bank loan. You will not use this money as a down payment.

This triggers an Income Tax Refund since you lowered your taxable income by $25,000 each.

If you are in a high income tax bracket of 50%, this would give you a rebate of approximately $12,500 each ($25,000)

This is the money you will use for your down payment.

As part of the RSP Home Buyer Incentive, you will pay back the $50,000 to your RSP interest free over the next 15 years. This works out to $278 per month.

There you have it! Four practical and creative ways to save up a down payment for your first home. Buying a home is difficult, but nothing great comes easy. We would love to help you through this process to make things as easy as possible. Leave your info in the form on this post and we will be sure to reach out.