Affordable housing feels more like a thing of the past in Canada. The gap between rising home prices and income growth has widened dramatically in the country in the last few decades. From 2023 to 2024, the yearly earnings increased by 74.3%. In that same timeframe, the average home price in Canada surged by 227%. With this grave affordability crisis, the time it takes to save for a down payment has also significantly increased. On average, it takes about 8 years to save up for a minimum down payment in Canada. But that’s just a rough estimate. The actual time it will take you depends on several key factors.
Factors That Impact Your Down Payment Saving Timeline
- Your Home Buying Budget
The first thing to consider is how much you plan to spend on your new home. A higher dream home price means a higher down payment and a longer time to save. Of course, your home-buying budget shouldn’t only be about the down payment. You also must consider closing costs, moving expenses, and other housing costs.
- The Down Payment Amount
Are you planning to put down the minimum down payment? Or do you want to make a 20% down payment to avoid the CMHC insurance – the mortgage insurance you must get if your down payment is less than 20%? Usually, the higher your down payment amount, the lower your mortgage payments will be, but it will take more time to save.
| MINIMUM DOWN PAYMENT REQUIREMENTS | |
| HOME PRICE | MINIMUM DOWN PAYMENT |
| $500,000 or less | 5% of the purchase price |
| $500,001 to $1,499,999 | 5% on the first $500,000 + 10% on the amount above $500,000 |
| $1,500,000 or more | 20% of the purchase price |
- Your Monthly Income and Savings Rate
The more you earn and the higher percentage you set aside each month, the faster you will reach your goal. Let’s break this down with an example. Suppose –
- Your home-buying budget is $900K
- You are planning to put down the minimum down payment – $65,000
(5% on the first $500,000 = $25,000 + 10% on the remaining $40,000 = $40,000)
- Your annual income is $50,000
- And you are saving 15% of your income every year
At this saving rate, it would take you about 8 years and 8 months to save for the down payment.
But You Can Afford a Home Sooner Than That
Yes, you heard that right! You don’t have to put off buying a home simply because you haven’t saved up the full down payment. As mentioned earlier, many options can help you speed up the saving process. One of the most popular options is the “down payment assistance program.” These programs give homebuyers like you a financial boost, making it easier for you to afford a home sooner than you expected.
Down payment assistance programs are designed to help homebuyers cover part or all of their down payment. These programs come in different forms, such as grants, tax credits, rebates, or loans with favourable terms.
GOVERNMENT PROGRAMS TO HELP WITH YOUR DOWN PAYMENT
In Canada, several government programs can help you with your down payment. Some of the most common government programs are:
- RRSP Home Buyer’s Plan (HBP)
Do you have funds saved in your Registered Retirement Savings Plan (RRSP)? If yes, you are in luck! The Home Buyer’s Plan lets first-time homebuyers withdraw up to $60,000 from their RRSP for a down payment. If you are buying a home with a qualifying partner, the total amount you can withdraw will be $1,200,000. The best part? You don’t have to pay tax on the money you withdraw if you pay it back within 15 years.
- Land Transfer Tax Rebate
Another program that can help you with your down payment is the Land Transfer Tax Rebate. As a rule, you must pay a land transfer tax when you buy a home anywhere in Canada, except Alberta and Saskatchewan. This tax can add thousands of dollars to your closing costs. However, if you are a first-time homebuyer, you may be eligible for a land transfer tax rebate. This rebate can cover a significant portion of your land tax.
In Ontario, first-time buyers can get up to $4,000 back. This tax rebate can free up more money that you can use for your down payment.
- Tax-Free First Home Savings Account (FHSA)
The First Home Savings Account (FHSA) is a special savings account that allows you to save up to $40,000 for your first home, completely tax-free. You can contribute up to $8,000 to this account per year. It is one of the best ways to grow your down payment faster.
PRIVATE DOWN PAYMENT ASSISTANCE PROGRAMS
The government programs aren’t your only option for down payment assistance. Several private companies and organisations offer financial assistance as well. One example is the Tonsto Down Payment Assistance Program. Under this first-time buyer program, an eligible buyer can get up to $50,000 in cash before closing. This assistance is completely interest-free and doesn’t require you to give up equity in your home.
However, not all private assistance programs work the same way. Some require repayment with interest or even a shared equity agreement. So, before signing up for any assistance program, you must read the terms and ensure that it aligns with your financial situation.
Key Takeaway – How Quickly You Save Your Down Payment Is Mostly in Your Hands
To sum it up, the time it takes to save for a down payment depends on how proactive you are. If you start saving early and take advantage of assistance programs, you can buy a home sooner than you think. But if you are not consistent with your savings and are unwilling to use available assistance, it could take you forever to save. So, the real question is: Are you ready to take the first step toward your next home? If yes, create a savings plan, look into these down payment assistance programs, and watch your homeownership dream become a reality.
