January 30, 2025

4 steps to help you save for your first home

Is this the year you buy your first home? With economic indicators starting to shift toward the positive (thanks, decreasing interest rates!), it might be time to start saving in earnest. 

It may seem challenging to save enough for a down payment, but with a solid plan it can be done. Let’s break it down into some manageable steps to get you on the path to homeownership. 

Step 1: Figure out your magic number 

First things first – let's figure out how much you can actually afford. This involves two key factors:

a) Your down payment: Aim for 20% of the home's price to avoid extra insurance through the Canada Mortgage and Housing Corporation. Can't swing that? No worries! You can still buy with as little as 5% down in Canada.

b) Your monthly budget: This will help you determine how much you can comfortably afford in mortgage payments, property taxes, condo fees, utilities, and maintenance.

Pro tip: Don't forget about closing costs! Budget an extra 2% to 3% of the purchase price for things like legal fees and land transfer taxes. And there may be maintenance (painting, cleaning, and repairs) as well as the cost of furnishing a new space.

Step 2: Craft your savings strategy

Now that you know your target, it's time to create a rock-solid savings plan.

Choose the right savings vehicle! There are some pretty helpful programs out there for first-time buyers:

  • Tax-Free First Home Savings Account (FHSA): This registered investment account allows Canadian residents to save up to $40,000 to buy their first home (up to $8,000 per year per person). FHSA contributions are tax-deductible, and any investment growth and withdrawals will be tax-free. We have a deep-dive on FHSAs for you here.

  • Tax-Free Savings Account (TFSA): A TFSA is another great choice when saving for a down payment. They are flexible and easy to use, and any growth is tax-free. Withdrawals are also tax-free. (But the money you invest in a TFSA comes from money you've already paid tax on. There is no deduction for TFSA contributions.) You may contribute up to your TFSA contribution limit.

  • Registered Retirement Savings Plan (RRSP): You can use up to $60,000 of your RRSP savings to help finance your down payment using the Home Buyers’ Plan (HBP). With the current rules, starting the second year after you’ve made your initial withdrawal under the HBP, you have up to 15 years to pay back the money you took out.* Any amount you don’t repay is treated as a taxable withdrawal.  

Want to discuss your unique circumstances and what the best savings options are for you? A Prospr advisor is here to help.

Step 3: Keep your eye on the prize 

Now that you’ve got a plan in place, revisit it regularly and be prepared to tweak it when things change. Perhaps you’ve earned a promotion which comes with a higher salary. You may want to increase your monthly savings towards your home.

In addition to your own personal circumstances, there are broader factors at play in the economy. For example, house prices often fluctuate. Revisiting your savings plan based on external factors can help ensure you’re still on track to buy the home you want.

You’ll also want to keep your credit score in good shape. Pay your bills on time, keep your credit utilization low, and avoid applying for new credit while you're saving up. A better score can help you secure more favorable mortgage terms. 

Step 4: Plan for the unexpected

You’ve saved up enough for your down payment and now you’re ready to buy. But throwing every penny of your savings into a home might not be the best idea. It’s important to have a safety net.

It can be helpful to have an emergency fund that’s easily accessed. You could consider keeping some savings in a TFSA. That way they can easily be withdrawn, tax-free, in case of an emergency. After all, a broken furnace or a leaky roof in your new home won’t be a cheap fix.

Remember, buying your first home is a journey, not a race. Stay focused on your goals, celebrate small victories along the way, and don't be afraid to ask for help when you need it. With careful planning and persistence, you'll be unlocking the door to your very own home before you know it!

Bonus tip! Protect your biggest asset

Once you’ve found your dream home, don’t forget to protect it! Prospr can help. By combining term life and critical illness insurance, Prospr by Sun Life can offer better coverage via our mortgage protection solution than you’d get with traditional mortgage insurance. And it usually costs less 😊. When you're ready to protect your mortgage, we've got you covered with in-depth resources here.

* Due to a temporary measure in the 2024 federal budget, there is an additional grace period for people who made or will make an HBP withdrawal between January 1, 2022, and December 31, 2025. They’ll have three more years before they have to start to make repayments.

This article is intended to provide general information only. Sun Life Canada does not provide legal, accounting, tax or other professional advice. Please seek the advice of a qualified professional, including a thorough review of your specific legal, accounting and tax situation.

Speak to a Prospr Advisor for your personalized advice!