Thinking about buying your first home? Saving for a down payment sooner rather than later is easier than you think. Here are nine strategies to boost your financial fitness and fast-track your way to homeownership.
GAUGE YOUR FINANCIAL FITNESS
You need an honest assessment to know which areas of your financial house are on track and which areas need improvement. Get your Financial Fitness Score by taking the Genworth Canada/Canadian Association of Credit Counselling Services Financial Fitness survey at caccs.ca.
CHECK YOUR CREDIT
Order a copy of your credit report from TransUnion or Equifax so you can check your credit score and history, as well as ensure there are no errors. Contact the credit report-ing agency if you identify any mistakes.
BUMP UP YOUR CREDIT SCORE
The higher your credit score, the better the lending terms you’ll receive, whether for a mortgage, car or consumer credit loan. The most effective ways of improving your credit score are paying your bills on time, dramatically paying down – or, better yet, clearing – your credit card balance each month and repaying any loans.
CREATE A MONTHLY BUDGET – AND TRIM THE FAT
Find a template online or download a household budgeting app to your smartphone. How much do you spend each month on rent, utilities, transportation, groceries, child-care, insurance, gym memberships and clothing? You need accurate info about your income and expenditure to evaluate how much house you can afford. At the end of the month, you’ll be able to spot patterns and identify the most effective places to save money, whether your spending vice is a two-lattes-per-day habit or too many taxi rides each month.
Try: Mint (iPhone, Android) or You Need a Budget (iPhone, Android).
DETERMINE HOW MUCH HOUSE YOU CAN AFFORD
Use your budget to evaluate how much of a mortgage you can afford. A bank may approve you for monthly mortgage payments of up to 32 per cent of your gross monthly household income, but can you afford it? Work out what your future expenses will look like each month (mortgage + insurance + utilities + taxes + other expenses). Do you make enough to cover this – with enough left over to save? If not, maintain breathing room by opting for a more affordable first home.
START “PAYING” YOUR MORTGAGE
If your future mortgage payments will cost approximately $1,800 per month and you currently pay $1,300 in rent, now’s the time to start setting aside an extra $500 per month, so you can get into the habit of budgeting $1,800 per month for shelter. That will grow your savings faster.
BULK UP YOUR INCOME
Another way to hold on to your money is to make more of it! Consider a second job, extra hours or selling those collectibles on eBay. (Bonus: Fewer boxes on moving day!)
PAY YOURSELF FIRST
Get serious about paying yourself first by setting up bi-weekly automatic transfers from your chequing account to your savings account. Beyond the down payment and closing costs associated with a new home, homeownership might come with surprise expenses like a leaky roof and a broken washing machine. A healthy savings account will make you less stressed about those possibilities.
CONSIDER PROFESSIONAL ADVICE
Once you’re on track, see a financial advisor to work out short- and long-term strategies for your ongoing financial goals, from homeownership to retirement savings. You’ll get more from the meeting if you have already determined your goals and actions.