How to Save Money When Buying a House
Check out our tips, strategies, and tools for saving for your first home.
By Emily Southey | 10 minute read
Budgeting effectively and minimizing costs are key components of saving for a home. But did you know that there are other methods of saving money to buy your first home, like opening a first home savings account or using our Wahi price tool? We break down some of the most effective methods of saving money and provide further tips on how to avoid overspending on a home in the future.
Money-Saving Methods When Buying a Home
Saving money for a new home requires time and patience. But using the methods below may allow you to add to your savings more efficiently.
Borrow from your RRSP
One way to help you save money when buying a home is to borrow from your Registered Retirement Savings Plan (RRSP). The Home Buyers’ Plan (HBP) is a federal assistance program designed to help Canadians purchase their first homes. It works by allowing buyers to withdraw funds from their RRSP to buy (or build) qualifying homes. Under the HBP, first-time homebuyers can withdraw up to $35,000 tax-free from their RRSP, as the amount withdrawn is paid back on time (buyers have 15 years to pay back the withdrawn funds). To be eligible for the Home Buyers’ Plan, you must meet the following criteria:
- The RRSP funds you borrow must have been in your account for a minimum of 90 days before withdrawal;
- You cannot have owned a home in the last four years;
- If you’re buying a home with a spouse or common-law partner who is not a first-time homebuyer, you cannot have lived in a house that they owned for more than four years;
- You must have entered into a written agreement to buy or build a qualifying home;
- You must plan to live in the home you purchase within one year of buying it, and it must be your principal residence;
- You must be a repeat buyer who is buying or building a home for a relative with a disability;
- You must have a written agreement to buy or build a home for yourself or a relative with a disability;
- If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due;
- You must withdraw the money from your RRSP within 30 days of taking title of the property; and
- You must be a resident of Canada.
Ultimately, borrowing money from your RRSP can be a great way of saving money for a home, especially if you need money for a down payment
Open a First Home Savings Account
Another way to save money when buying a home is to open a first home savings account. In the 2022 budget, the federal government proposed the introduction of a Tax-Free First Home Savings Account (FHSA). This new registered savings account would give prospective first-time homebuyers the ability to save up to $40,000 tax-free. Similar to an RRSP or a Tax-Free Savings Account (TFSA), any contributions made would be tax deductible, and withdrawals to purchase a first home would be non-taxable. The 2022 federal budget outlined some further details about the proposed FHSA, including an $8,000 annual contribution limit alongside the $40,000 lifetime contribution limit. As of now, the federal government expects to open up an FHSA option to Canadians in 2023.
Use the Wahi price
A third way to save money when buying a home is to take advantage of Wahi
MyBuy. Wahi offers many tools to users, from the Bestimator to the GTA Neighbourhood Finder. MyBuy is designed to reduce costs and make it less expensive to buy a home. It works as follows: When you purchase a home using Wahi MyBuy, Wahi eliminates up to 70% of the commission paid on every sale. These savings then go back to the buyer, with payment made approximately two weeks after the closing of the property. On average, this 70% savings equates to roughly 1.75% of the purchase price, which, for a GTA (Greater Toronto Area) home, can mean as much as $20,000 back in your pocket.
Pay off outstanding debt
Another tip for saving money for a home is to pay off any outstanding debt. This is usually a great first step as mortgage lenders will assess your current debt levels when deciding whether to approve you for a loan and at what rate. The more debt you have, the higher your interest rate is likely to be, and therefore, the more expensive your mortgage payments will be. Conversely, if you have little to no debt, you may qualify for a lower interest, which makes buying a home cheaper in the long run.
“A third way to save money when buying a home is to take advantage of Wahi MyBuy. Wahi offers many tools to users, from the Bestimator to the GTA Neighbourhood Finder. MyBuy is designed to reduce costs and make it less expensive to buy a home.”
Estimate mortgage payments by getting pre-approved for a mortgage
Getting pre-approved for a mortgage will give perspective homebuyers a better idea of how much they can afford to spend on a home, as well as how much they need to save. A mortgage lender will assess your current finances, credit score, and debt-to-income ratio to determine the amount you may qualify for and what rate. This will give you an idea of how much your monthly mortgage payment will be, and from there you can come up with a financial plan to ensure you meet them.
Twelve Tips to Save Money on a New Home
Avoid overspending on your future home by following the tips below.
1. Work with an experienced realtor
One way to save money when buying a home is to partner with an experienced realtor. Using a reliable realtor who knows the local market and has a proven track record can help you save money. They will do a comparative market analysis on your behalf to ensure you don’t overspend on a home and can give you expert advice when it comes time to make an offer.
2. Save at least 20% for the down payment
The larger your down payment, the more money you can save. Mortgage lenders are far more likely to offer lower interest rates to borrowers who make 20% down payments as opposed to borrowers who make 5% down payments.
3. Improve your credit score
Another way to save money when buying a new home that also relates to your mortgage is by increasing your credit score as much as possible. Mortgage lenders will evaluate your creditworthiness when deciding whether to approve you for a mortgage loan and at what rate. The higher your credit score, the more financially responsible you appear, and the better your odds of qualifying for a lower interest rate.
4. Buy a home during the off-season
If you want to minimize how much you spend on a home, consider purchasing a property in the off-season. The off-season in real estate is typically between October and February. The fall and winter are usually when there is the least demand from buyers, which may translate to cheaper listing prices.
5. Negotiate closing costs
Closing costs can add up quickly — especially if you are responsible for paying them all yourself. Although the seller doesn’t have to agree, it’s generally worth negotiating with them to see if they are willing to cover even part of the closing costs. Some of the closing costs that may be worth negotiating include legal fees, appraisal fees, title fees, interest fees, or lender fees.
6. Add to your monthly mortgage payments
Once your mortgage has been approved and you’ve purchased your first home, there are still ways you can save money. One method is by adding a little more to your mortgage payment each month. You would be surprised how much you can reduce the amount of interest you owe with incremental increases.
7. Refinance your home mortgage
Another option if you’re looking to save money after your home purchase is to consider refinancing your home mortgage. Doing so could allow you to qualify for a new loan at a lower interest rate, which will reduce your monthly mortgage payments and the overall amount of interest owed over the life of the loan.
8. Increase your home’s energy efficiency
Reducing your home’s energy consumption can also save you money on your new home. Energy costs add up quickly and might even add upward of hundreds of dollars to your monthly expenses. Luckily, there are many ways you can increase the energy efficiency of your home and thereby decrease your monthly utility bills. For example, you could install LED lights throughout your home, invest in energy-efficient appliances, such as refrigerators, dishwashers, clothes dryers, and washers (look for appliances with high SEER ratings), invest in a smart thermostat, install solar panels on the roof, or even plant trees around your home for a natural cooling effect in the summer.
9. Don’t skip the home inspection
Home inspections are one of the most popular offer conditions for a reason. Hiring a professional inspector to inspect a home before you buy it can save you a lot of money down the line. If there is a problem, the inspector will find it and from there you can determine how much it will cost to fix it and decide whether the home is still worth purchasing. If you decide it is, consult with your realtor and try to negotiate a lower purchase price.
10. Get a home warranty
Investing in a home warranty may also save you money on your home. A home warranty is a contract between a homeowner and a warranty company, in which the latter agrees to provide discounted repair and replacement services to the former. Think of it as a form of insurance that allows homeowners to repair or replace expensive systems and appliances, such as furnaces, air conditioners, or dishwashers, for much smaller fees than they would otherwise cost.
11. Hire a real estate attorney
Hiring a real estate attorney to review all legal documents before you purchase a home is a crucial step in the homebuying process. Specifically, a lawyer can help draw up and review all mortgage and legal documents, calculate land transfer taxes or property transfer taxes at closing, and ensure there are no claims to the property. Ultimately, a real estate attorney will make sure that you thoroughly understand the terms and conditions of the purchase agreement and are not paying for anything more than you’ve agreed to.
12. Determine if the home is in a high-risk area
Before purchasing a property, do some research to determine if it is in a high-risk area. A high-risk area is one that is prone to natural disasters, such as floods. Alongside this research, you may also want to look at crime rates to make sure the home is not in an area with high crime rates, as both of these factors can increase the cost of property insurance. If the area where your home is located is deemed high risk, you may be required to purchase high-risk insurance. This can be costly and may not be disclosed by the sellers.
Frequently Asked Questions
Does seasonality affect the cost of a house and in turn savings when buying?
Seasonality can be an important factor when it comes to saving money on a home. Buying a home during the off-season (between October and February) is generally cheaper than buying a home in the spring or summer, during which many other buyers are looking for homes. Since there is less demand in the fall and winter, purchase prices may be lower and sellers may be more willing to negotiate. That said, there may be fewer homes on the market, which means fewer options to choose from.
Should paying off credit card debt be a priority when saving for a house?
Yes, paying off your credit card debt is wise when saving for a home. This is because a mortgage lender will assess your current debt levels, and your debt utilization ratio more specifically, to determine your interest rates. If you have lots of credit card debt, you may not be approved for a mortgage, or alternatively, your loan may be approved but at a higher interest rate than if you had little to no debt.
What clear goals should I set when saving money to buy a house?
A few goals you should set when saving to buy a house are to pay off any outstanding debt, to increase your credit score as much as possible, and to use a high-interest savings account (or in the future, a first home savings account) to save money. Of course, reviewing your budget and cutting down on unnecessary expenses can also help you save money to buy a home.