Currently, 66.5% of Canadian households own their home. If you want to join the ranks of Canadian homeowners, you’ll need to build your credit and save up enough to make your initial down payment.
Here’s how to save money for a house down payment in Canada:
- Set A Target & Create Savings Milestones
- Create A Budget & Cut Expenses
- Pay Off Credit Card Debt
- Create Additional Income
- Save Your Money In A Separate Account
- Buy Your Home
Below, I’ll cover each of these steps in further detail and explain why they’re an important part of saving money for your home.
Before a ship sets sail, the captain knows its destination. Similarly, all prospective home buyers should know how much they need to save before they apply for a home loan.
To qualify for a loan through the Canada Mortgage and Housing Corporation (CMHC), you’ll need to put down at least 5% of the total cost of the home.
To make home ownership more accessible to Canadians, the CMHC allows home buyers to qualify for high-ratio mortgages by adding additional mortgage loan insurance to the price of their home.
Based on the value of your home, the amount of your down payment can vary, as follows:
|Home Cost||Required Down Payment|
|$499,999 or less||5%|
|$500,000 to $999,999||5% on the first $499,999, 10% on the additional sum|
The CMHC does not insure mortgages for homes valued at over $1 million. Because million-dollar homes don’t qualify for CMHC mortgage insurance, banks typically require a down payment for at least 20% of the home’s value.
For example, if you’re trying to buy a home for $750,000, your down payment on a CMHC-backed mortgage would be $49,999.95. This is calculated by adding 5% of $499,999 ($24,999.95) to 10% of the remaining $250,000 ($25,000).
Saving money for a home down payment in Canada may seem like a monumental task. However, if you create a financial action plan for yourself, stick to your budget, and consistently save, you may be able to save for your home in as little as a few years.
Here’s a step-by-step guide on how to save money for your first house down payment.
You don’t need to have a particular house in mind to start saving for a home. However, you should have a ballpark figure of how expensive of a home you’re trying to purchase (i.e., $500-600,000 or $350-425,000).
Once you get your ballpark range, assume that you’re saving for the top end of it.
Based on that number, calculate your minimum required down payment based on the CMHC down payment requirements outlined above.
Let’s just say that you’re saving for a $600,000 home. Your minimum down payment would come out to just under $35,000, which is your main target.
Having a big goal is great, but you need to create a timeline for yourself and break the main target into smaller annual and monthly milestones.
If you wanted to save that amount in two years, you would need to save an extra $17,500 per year, which would give you the following savings milestones:
- $1,458 per month
- $336 per week
- $48 per day
Now, you have some clear, achievable goals. Be realistic about your goals and don’t try to set too tight of a timeline. However, don’t be afraid to push yourself a little extra and get outside of your comfort zone.
It’s better to set a high goal and come up slightly short than to set too low a goal and short-sell yourself.
With your milestones and targets outlined, you’ll need to find a way to create that extra space in your monthly budget. One of the first things you should do is to create a budget that allows you to save. If you’re used to living paycheque to paycheque, then this is especially important.
The good news is that almost everybody spends more than they really need to. The bad news is that you may have to give up some of your more wasteful spending habits.
For example, if you’re used to spending $12 every morning for breakfast and coffee on the way to work, you might need to buy a coffee maker and start cooking your own breakfast in the morning. This alone would save you $240 per month, assuming that you’re paying $12 per day, five days per week.
Some other unnecessary expenses that you might be able to cut out include the following:
- Going out for lunch (start packing a lunch for work)
- Drinks with friends after work (order water or cheap soda)
- Payments on a recreational vehicle (consider selling your boat, RV, or motorcycle)
- Designer-brand clothes and cosmetics (consider thrifting or discount stores)
The best way to determine which expenses to cut is to create a detailed budget. I recommend downloading one of these budgeting apps.
Most budgeting apps allow you to connect your bank account and credit cards. The apps will then scan through your statements, categorize your spending, and show you exactly how much you spend in each category every month.
If you notice that you’re spending an exorbitant amount in a non-essential category, find ways to cut down on it and commit to saving the money towards your home down payment instead.
When you go to make your down payment on your home, the last thing that you want is a bunch of high-interest credit card debt weighing you down. Every month that you carry over a credit card balance, the additional interest charges take away money that you could otherwise be saving.
This is especially true if your credit card has a variable interest rate, which is subject to increase based on the prime lending rate.
In addition to budgeting and saving the additional funds you need, you should also consider creating an additional income source. A side hustleis likely the best way to accomplish this, as it will allow you to earn extra money during your free time, while still allowing you to keep up with your existing work schedule.
If you’re saving up with a partner, then the results can be compounded if both of you hustle on the side and combine the additional income. Using your car for courier or rideshare services (such as Uber or DoorDash) is a great way to earn an extra $100 or so per week.
Some other great side hustles you can try include:
As you begin to save money by implementing a tighter budget and increasing your income, you should save your down payment money in a separate account. It should not be lumped in with your emergency savings, or else you risk prematurely tapping into it and delaying your deadline.
Save your money in a separate account and treat the money like it doesn’t exist. I recommend saving the funds in a high-interest savings account like Neo Money, which will allow your savings to grow even more with a generous interest rate.
Once your money is put into the account, treat it like it doesn’t exist. Sign a personal contract with yourself or your partner, agreeing that the money isn’t to be touched for anything.
If you work and save consistently, you’ll gradually hit target after target. Before you know it, all of your hard work will have paid off, and you will have the down payment required to purchase your home!
Following the steps above is a surefire way to save money for a house down payment in Canada. Here are some other helpful tips to consider as you save money, though.
If you’re purchasing your first home, then your mortgage may qualify for the CMHC’s First-Time Home Buyer Incentive. If approved, the Canadian government will add an additional 5% to 10% on top of your home down payment.
This amount must be paid back over the course of your mortgage, but it can help reduce the amount that you need to save for your down payment.
I don’t recommend saving your money in a big bank like RBC or BMO. These banks offer negligibly low-interest rates, which won’t allow your money to grow in value. Instead, I recommend saving your money in a tax-free savings account (TFSA) or a high-interest savings account (HISA).
A TFSA can be used as an investment vehicle, allowing your savings to grow incrementally by investing the funds in the market. While this is slightly riskier (as it depends on market conditions), it may allow your savings to grow more quickly.
HISA accounts like those offered by EQ Bank or Neo Money allow your funds to grow steadily with interest that’s paid monthly, based on your account balance. The more you save, the more you’ll earn in interest.
To qualify for a CMHC-backed loan or take advantage of the First-Time Home Buyer Incentive, you’ll need to have a credit score of at least 680. If you’re smart with your finances, pay your credit cards off, and settle old debts as you save for your down payment, this shouldn’t be a problem.
To get the full picture of your credit, you can view your free credit report here. Both TransUnion and Equifax (the two major credit bureaus in Canada) offer free reports to all consumers.
It may also be worth signing up for a credit monitoring service to keep track of your progress along the way.
Owning a home won’t do much good if the roof springs a leak and you can’t afford to fix it.
In addition to saving money for your down payment, I also recommend saving a few thousand dollars extra for any unexpected home repairs or routine maintenance that may come up during your first year of home ownership.
To wrap up, here are a few quick answers to some of the most commonly asked questions about buying and saving for a house in Canada.
Thanks to Canada’s Home Buyer’s Plan, you’re allowed to withdraw up to $25,000 from your RRSP to put towards the down payment of your home. However, this amount must be paid back within 15 years and may result in higher monthly payments on your mortgage.
Still, it’s a good plan to know about, as it can dramatically reduce the down payment that you need to buy your home.
If you’ve recently purchased your first home, then you may be eligible to receive a tax credit from the CRA. The First-Time Home Buyers’ Tax Credit (HBTC) allows you to claim a tax credit up to $750 when you file your income tax returns for the year that you purchased the home.
If you create a simple, methodical plan to save money and earn additional income, then you should be able to save up for your home down payment in a relatively short amount of time. The important thing is that you remain disciplined about your finances and stick to your budget.
You can also take advantage of government incentives, such as Canada’s Home Buyer Plan or the First-Time Home Buyer Incentive, which allow you to borrow money from your RRSP or the government to put towards your down payment.
Freelancing online is one of the best side hustles to help you earn additional income. Keep on reading to see my list of the best-paying freelance jobs in Canada!