Saving up for a home

When some people think of budgeting they think of restricting their money. But budgeting doesn't have to limit the enjoyment of life, you can still have fun while being money conscious. The key to saving up for something can be setting a clear financial goal.

Having a goal in mind can give you the determination needed to help put aside what you can to reach your dream. In this case, you're probably saving up for a home and want a down payment in the next 5-10 years. This might take a lot of work, and setting yourself up for success with budgeting can be key.

To help you start your budgeting you can use Get Smarter About Money spending calculator. It helps map out all your spending habits and align them with your goals. Creating a budget can help you allocate whatever you can to your goals and start your investing journey.

Budgeting won't just help you save up for a home but can also help you plan out your future, whether you should reach for that pay raise, or whether you can afford to take that trip you've always wanted. Budgeting can help make you feel a lot more secure with your finances.

Another way to help save up is using your tax rebates every year. If you get $1,000 back every year that money is outside of your normal budget and can help you make significant progress on your goals.

The Registered Retirement Savings Account (RRSP) account has a great feature that helps you save for your home, called the Home Buyers' Plan (HBP). It is a great way to help yourself achieve your homeownership goals. By leveraging this feature, you can start saving for a down payment for your first home.

With the RRSP Home Buyer’s Plan (HBP), you and your spouse or common-in-law partner can withdraw a maximum of $60,000 per person (or $120,000 combined) tax-free for a qualifying home. Once you withdraw the funds, you have up to 15 years to pay it back. Repayments begin in the fifth year after the year in which you withdraw the funds (if the funds are withdrawn between January 1, 2022, and December 31, 2025).

The RRSP can be a very useful account if your employer offers RRSP contribution matching as a benefit. If your employer does this, be sure to take advantage of it as it can help boost your savings.

Should you prefer to use just your First Home Savings account (which we will go over below) over the HBP, you can transfer your RRSP funds to your FHSA account to use it to buy your first home (if you have the contribution room). To learn how to transfer money in your Questrade accounts you can see our lesson on Transfers between Questrade accounts.

With the new First Home Savings Account (FHSA) we are in a better position than before when it comes to saving up for a home. You can contribute up to $8,000 a year into your account with a lifetime contribution limit of $40,000. Now this may not be enough for a down payment on its own, but it is a good start - especially when you start earning investment income on your contribution. Even if you don't plan to contribute immediately, your unused contribution room will be carried over to the following year. Therefore, don't delay opening an account in order to begin increasing your contribution room.

If you choose to use both the FHSA and HBP you'll be in a great position to save up for your first home (we’ll look at the math a bit later in this article).

FHSAs and RRSPs can be used to save for home purchases years down the road, but there are also some potential benefits for you if you choose to use them in the short-term.

If you're looking to buy your house in the next year or so the FHSA is a great account to take advantage of. You can open an FHSA and contribute the contribution limit for the year into the account and use that full amount the same year towards your first home, helping you save taxes on that 8,000 a year limit.

Should you be using these accounts as a long-term saving option you can contribute the full amount in the FHSA as well as any compound interest you gain. For example: suppose you utilized the FHSA on a long-term basis. If you consistently deposited $200 per month over the entire 15-year period, and the estimated monthly compound interest was approximately 5%, your total contributions would amount to $36,000. At the end of the 15 years, your compound interest earnings would tally up to $17,457.79, resulting in a total of $53,457.79.

If you take that and add in the maximum withdrawal of $60,000 from your Home Buyers Plan, you could potentially have as much as $113,457,79.

Although you might not be able to afford a house today, the market always fluctuates, giving you time to evaluate when you want to buy your first home. When saving to buy a home it can be helpful to continue to rent within your budget until you find the perfect opportunity. Renting can help you save a lot of money especially if you share the costs with a partner or roommate.

Predicting the housing market may be difficult, but by building a plan for saving up for your first home allows you the flexibility to take advantage of the market when you think it's the right time. By taking advantage of the account types Canada offers and budgeting to save up for your first home you are one step closer to getting the keys to your dream home.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.