In North American culture, buying a house is considered one of the more remarkable things someone can do. It shows that a lender was impressed enough to give you a mortgage to fund this expensive asset, and that you were able to save enough money for a down payment.
But, how do you manage to come up with a down payment to buy your dream home? It’s doable and if you start saving now, you’ll have enough money for a down payment in five years.
The first part of your five-year plan to buy a house is to open a savings account. This will literally be your “I’m buying a house in 5 years” account. The only money that goes into this account is for a down payment. You can open a savings account with your current bank and, if you’re part of a couple, you can open a joint account, making it easier for both parties to contribute.
Figure how much you need to save.
If you are putting down 20% of your future home’s purchase price, you should assume you will need to come up with between $50,000 and $80,000. Remember, you can buy a home in Canada if you put down only 5%, but you will need to purchase mortgage insurance.
Since it’s still early and you may not know how much your future property will cost, be realistic. If you don’t think it’s possible to come up with $80,000 in five years, plan to buy a less expensive house.
Establish a monthly budget and include everything from car payments to student loans to credit card bills. Your monthly budget should also include food, heating, electricity, internet, and cable – basically anything you spend money on. Once you’ve calculated your monthly budget, see if you can reduce it by 10%. Maybe you’re spending too much on eating out? Maybe you have a gym membership that you don’t use but are paying for? These excesses add up and if you don’t eliminate them you will not be able to afford to buy a house in five years.
Once you’ve added up your monthly budget subtract if from your monthly income after taxes. Anything left over at the end of the month goes right into your newly opened savings account. Besides your leftover cash, any bonuses, tax refunds and birthday money should also go into your savings account. Every little bit helps.
At the end of every year, look at your savings account and take the time to give yourself credit for just how much you’ve managed to put away. The only disadvantage of this five-year plan is that you will have to avoid taking big vacations or buying a new car during this time period. However, the payoff is probably more important because in five years, you will be able to buy the house you have dreamed of.