How to get the funds needed to buy a property

You live in an apartment, you are thinking about buying a property, but you know that it will take you a lot of money to pay your initial down payment, the famous cashdown? Financial experts tell Métro some tips for buying a first home. 

What is the down payment for a house?  

The minimum amount you must provide as a down payment depends on the purchase price of the home. For a property at $500,000 or less, you will have to pay 5% of the purchase price, while for a house at a higher price, you will have to provide 5% for the first $500,000 and 10% for the rest , up to $999,999. Homes of $1 million or more require a 20% down payment. 

First of all, as Gabryel Laflèche, personal finance and real estate specialist and director of the writing at Oolong Media, you should know that at this time, we are at the “peak of government incentives” for the purchase of a property. 

First, the Home Buyers' Plan (HBP) has been around for years. It allows you to borrow from your RRSPs up to $35,000 to buy a property without paying taxes. You then have 15 years to repay the amount borrowed without interest. 

Added to this very recently is the CELIAPP, a tax-free savings account for the purchase of a first property. It allows first-time homebuyers to contribute up to $8,000 per year, with a lifetime cap of $40,000. 

Buyers must “absolutely” use this government aid, says Gabryel Laflèche. “The CELIAPP is literally money given. Not opening one would be the equivalent of refusing free money from the government,” he insists.  

Financial planner Marc-Olivier Desmarais agrees that the CELIAPP is a very beautiful invention. He qualifies, however, by saying that there are several other tools and that each person can use a different tool that best suits their situation.  

Here are some examples offered by Hardbacon, Metro's financial content partner:  

• First-Time Home Buyer Incentive (FPI) : If your annual income does not exceed $120,000 and your total borrowing is limited to four times your income (or less), you could obtain the IAPP. This incentive is like a second mortgage on your property. It offers you an amount of 5% to 10% of the purchase price of the home for your down payment. 
• Tax-Free Savings Account (TFSA): Allows you to accumulate money tax-free. The money is always available whenever you need it and withdrawals are tax-free.  
• Rebates and rewards programs: On a daily basis, you probably pay for your purchases with a credit card, a debit card or a prepaid card. By comparing offers to choose the best credit card, you could save enough to see a difference in your budget. 
• A private lender: This is an individual or a business who lends money, but who is not tied to a traditional financial institution. It can be an investment company that pools investors' capital, or it can be a relative or even someone you don't know.    
• A gift of equity to your loved ones: Your parents may want to sell their house to move to a smaller one. They could then transfer the house to you. For example, their house is worth $600,000, but they leave it to you for $450,000. The difference between the price at which you buy the house and the market value constitutes the equity gift and replaces your down payment.  

And to find the right tool for you, the one that will allow you to get the most benefit, you have to talk to a financial planner, advises Marc-Olivier Desmarais.

Also read: Is it better to buy a property or stay a tenant?

Budget wisely 

Besides government handouts, the other way to save for a cashdown is to analyze and then reduce its expenses. This is part of budget management. 

“The budget is a tool, it is not an end,” emphasizes Marc-Olivier Desmarais. This is helpful in illuminating someone's saving capacity. » 

For the expert, making a budget consists of writing your income and expenses on lines and placing them in descending order of importance.  

The first line at the top will be the tax, which cannot be evaded. Next, at the second line comes the housing, then at the third, the power supply. There, we can see if we spoil ourselves too much in restaurants, for example. There will also come a line on subscriptions, such as software, magazines, etc., which we may not even consume… 

Thus, “we are starting to highlight expenses that we 'we can erase and correct behaviours,' indicates the financial planner.  

Gabryel Laflèche is of the same opinion: “You have to analyze item of expenditure by item of expenditure. »  

“You have to ask yourself where our money is going and where there is a way to reduce it. For example: my car insurance. Can I get a cheaper one? If you do this for different expense items, it is possible to free up a lot of money. People often pay too much for a lot of business,” he believes.

You usually have more control over decreasing your expenses than increasing your income. But maybe at some point, there will be no way to eliminate expenses. There, for Marc-Olivier Desmarais, it's a good sign of “waking up to tell you that you should ask for a raise, or look for more clients, or a new job…”. 

Automate your savings 

Finally, when the vagaries of life put sticks in the wheels of your savings, you can automate it all, Hardbacon points out. It solves a lot of problems! Schedule an automatic payout so money is set aside every time you get paid.  

Even for amounts as small as $25, it's easier when is taken directly from your current account. By automatically transferring this money to a savings account, you will no longer see it in your checking account and avoid the temptation to spend it. Once you're used to living on $25 less, increase the payments to reach your goal faster. 

In collaboration with Hardbacon.