In order to buy a house, you’ll likely need to know how to save a five figure down payment, and that’s if you’re in an affordable housing market. With a minimum (Canadian) down payment of 5% of the house purchase price, even a $200,000 house will require a minimum down payment of $10,000.
(The required down payment jumps to 10% on the portion of your purchase that’s over $500,000, and if you’re eyeing a $1,ooo,ooo house, you’ll need a 20% minimum down payment. This post is more for us over here in the under-$500-k price range.)
That’s why it didn’t surprise me at all that one of the biggest questions I got over the past week, after announcing that The Boyfriend and I officially bought a house, was “Can you talk more about the whole down payment thing?”
Which yes, yes I can.
I’ve already written about how I ramped up my savings to help fund my house down payment #goals, but I wanted to expand on that piece and add some more current perspectives as a Person Who Actually Did Buy a House.
Here are some dos – and don’ts! – I learned while saving up a five-figure down payment for a house in the past year.
DO: Know how much you spend and save
I may go to my grave saying this, and if not everyone is doing it by then, put it on my tombstone: Tracking my spending was critically important in how I managed to save a five-figure down payment.
You can do it in a spreadsheet like I do, or connect your accounts to something like Mint or You Need a Budget, but knowing where your money is going is always going to be step one. How will you know where you can find an extra $200 to throw towards your goals if you don’t know where that $200 is going in the first place?
Plus, you might even be able to find $200 extra in your monthly money plan without even noticing it’s gone if you eliminate stuff like recurring payments you don’t even use anymore.
DON’T: Abandon your other goals
If you’re a human, you might be tempted by the siren song of your other savings goals when you’re trying to find extra money to throw towards your house goal.
I say this from personal experience, because I am also a human being.
“Who needs to retire, really? That’s $600 whole dollars a month I could put towards my down payment.”
“Emergency funds are for suckers. Gimme that $200-a-month savings for my house.”
To be exceptionally clear, do not do those things! (Also, I did not do those things!)
Those savings contributions are ones that you probably put in place after careful, level-headed consideration in order to take care of future-you. New, house-crazed you needs to take ten big steps back and not touch those contributions.
If you really need to raid an existing savings contribution, the best advice I can give you is don’t touch your existing retirement or emergency fund savings. If you’re saving for other, less ALL CAPS IMPORTANT goals? You can feel free to redirect those savings if the house is your priority.
But please: Don’t stop saving for retirement or emergencies just to buy a house. You can’t eat your house in retirement, and I guarantee you there will be house emergencies too.
DO: Prioritize your goals
In order to be a paragon of financial virtue and not totally abandon your retirement #goals, it helps to know how to manage and prioritize multiple savings goals, all at the same time. (In fact, my personal opinion is that this is the only way to survive your 20s with your finances intact, but whatever.)
To do that, you kind of have to get real about what really matters to you, and what needs to come first (and second, and third, and…) on your list of savings goals.
When I realized housing was my #1 priority for the past year – and that it came with a hefty savings goal attached to it – here’s exactly what I did.
- I took stock of all of my monthly savings contributions.
- I made myself a deal: if I left my retirement and emergency fund contributions intact, I didn’t have to feel guilty about not increasing them for the next year.
- I scaled back on a few of my other savings goals (ahem, king sized bed).
- I tried to get my “money available to save” number as high as I could by increasing my savings rate.
- I threw everything in that “money available to save” category at my house down payment goal.
DON’T: Think you can’t make more money
You guys know I’m hesitant to recommend side hustling to everyone and anyone, but here’s what I will say.
When I started saving for my part of our house down payment, I was staring down a $20,000 savings goal, and I had about ten months to go from $4,000 to $20,000.
Even with all of my savings adjustments, and reprioritizing my goals, my monthly contributions weren’t going to get me all of the way there. (By a long shot, if I’m being perfectly honest.)
But I set the goal anyways.
Here’s the thing: Your income is not a fixed, known quantity.
Just because you’re making X now, doesn’t mean you won’t be making Y later. If you know you’ve got a gap between what you want to save, and what you can realistically save now? It will make you a whole lot more open to noticing money-making opportunities when they come around.
In my case, they came around from a blog, but they can come from just about anywhere. Neighbourhood kid needs a tutor – or a babysitter? Dog next door needs a walk when you get home from work? Got a special skill you can freelance out to some peeps?
Those opportunities might be the difference between buying a house on your own timeline, not just your salary’s timeline.
DO: Know what you’re going to do with extra money
Side hustling is not the only extra money that comes into a person’s life, you guys.
There are tax refunds. There are work bonuses. There are overly generous grandparents on your birthday.
If you have a big goal in mind, like saving a five figure down payment? It should be at the top of your list when unexpected money hits your account.
My favourite rule of thumb for this is to allocate 90% of this money towards your biggest goal, and spend 10% on whatever-the-eff you want. Maybe that’s a big ol’ Starbucks card top up, maybe it’s a fancy-pants Lego set, but whatever it is, you get to buy it guilt-free.
As long as the other set percentage (90%, or 70%, or whatever you’d like) of that money gets put away ASAP, in an account dedicated to your down payment goal.
So what do you do after all of that is done?
The greatest part of this whole process is that I seriously doubt there will be a time when knowing how you can balance and prioritize your different savings goals won’t be a hella valuable thing for you to know how to do.
Especially since as soon as you hit your down payment savings goal, you’ll need to do it all over again to re-allocate that money you all-of-a-sudden get to save for other things.
Now that we’re moving in a few months, and staring down a spreadsheet full of closing costs, new appliances, selling costs and various wants for the new place, both of our savings goals got thrown in the air and resettled in totally new and distinct ways.
That king sized bed is so back on my list, friends.
For the next few months, instead of throwing my highest savings contribution towards our down payment account, that honour is now split between my closing costs account, my “big house purchases” account and my retirement savings.
Because for the record, and I will say this until the end of time, I didn’t just up and abandon my retirement savings through all of this.
Your girl does not have a work pension. Retirement savings are a non-negotiable for me.
What else are you doing to save up a down payment on a house? Do you have any more tactical tips you want to share? Leave ‘em in the comments!