Here’s a sample of daunting down payment sums, based on September average home prices from the Canadian Real Estate Association:
- Across Canada — Average home price: $686,650. Minimum down payment required: $43,665.
In provinces where much of the country’s real estate is sold, the figures are even higher.
- Ontario — Average home price: $887,290. Minimum down payment: $63,729.
- British Columbia — Average home price: $913,471. Minimum down payment: $66,347.
That’s a lot of money for most anyone to save, especially when inflation and steadily rising living costs are outpacing wage growth in Canada. But your homeownership dreams don’t have to crumble when they inevitably collide with reality.
In fact, a reckoning with your true financial picture could do more to get you into your first home than anything else this side of a fat cheque from a cash-flush relative. If no one is in the wings to help, you’ll need to get creative to save enough for one of the biggest out-of-pocket expenses of many people’s lives.
Proof it can be done
Jordan King and Evan Ungar, the millennial real estate investors behind Toronto-based venture capital firm TUK Capital, each purchased a first property about six years ago. Prices have gone supernova since then, but King and Ungar believe that first-time homebuyers, even those just getting their feet under them financially, can find — “carve out” might be more accurate — a path to homeownership.
“It really comes down to creativity,” Ungar says.
But don’t kid yourself. Creativity won’t get you too far unless it’s accompanied by sacrifice, accountability and commitment. If it sounds similar to preparing yourself for a marathon, it is: Saving a down payment could be a years-long slog toward achieving your ultimate goal of owning a home.
Ungar and King have suggestions for first-timers ready to take on the potentially arduous task of building up their capital.
1. Don’t just draw up a budget. Stick to it.
Saving a significant pile of cash requires targeted, disciplined spending. To find out what you might possibly be wasting your money on, you need to write up a detailed budget.
Prior to getting serious about saving his first down payment, King was regularly eating out and partying, spending hundreds, if not thousands of dollars a month on what he now calls “literally nothing.”
“If I had been saving that money and repurposing it into an asset, it would have been a much different situation. And that's exactly what happened for me,” King says. “I realized how much I was really spending on these things, and I completely changed my lifestyle. It was the best decision I've ever made.”
Cutting unnecessary spending allowed King to assemble a $76,000 down payment for his first purchase, a pre-construction condo. With that money down, his mortgage payments and the property’s increase in value, he’s built equity in the condo over the last six years of more than $300,000.
“When you have a budget in front of you, set it aggressively. You'll be blown away by how much money you can put away,” Ungar says.
Unless your family is loaded, succeeding in an overheated market with a low supply of houses for sale is going to require some discomfort on your part. Some buyers, including King, resort to living at home while they save. Others don’t have that option.
When Ungar’s parents relocated to Alberta while he was saving for his first property, a pre-construction townhouse in Oakville, Ont., he had $9,500 to his name. He knew he had to keep his costs as low as humanly possible.
So he moved into an old doctor’s office with rock-bottom rent.
“I was prepping my food with a toaster oven and living out of a minifridge,” he says. “I did that for 11 months and hit my down payment out of the park.”
Ungar wound up putting a total of $135,000 down on his $470,000 townhome. Six years later, it’s worth more than $1 million.
3. Consider a property that generates income
Most Canadian homebuyers aren’t looking for an investment property, but generating income by renting part of your new home can make your monthly mortgage payments much easier.
“Offsetting your expenses [with rental income] is the best financial defence you can play,” Ungar says. “It is a huge, huge game-changer. And I firmly believe that not enough people do it.”
Finding a home with a rentable unit won’t necessarily make saving your down payment any easier, but putting down 5% in exchange for a tenant paying a significant chunk of your mortgage will make home ownership that much more affordable for you.
Being a landlord and living in the basement of your new duplex may not sound like your ideal situation, but with homes as expensive and hard to find as they are, consider renting part of your property as a first step toward the goal of winding up as the sole tenant in your own home one day.
4. Keep your expectations in check
When King and Ungar began searching for their first homes, they hoped to find spacious detached properties. But they quickly realized that the houses they wanted were well out of their price ranges. The only way forward was to adjust their expectations.
“If I were just to wait to get a detached home, I never would have been able to get into the market,” King says.
You may not get your dream home out of the gate. The right property for a first-timer is one that fits your budget and overall financial plan. That might mean purchasing a condo instead of a semi, or an investment property in a city where prices are low enough that you can put down the minimum 20% required for rental properties you don’t live in.
King and Ungar recently bought a duplex in Sault Ste. Marie, Ont., a small, remote market that wouldn’t have caught most buyers’ attention five years ago. But expanding the scope of their search allowed the pair to grab a duplex in the city for $160,000. The 20% down payment was only $32,000.
“You can't have a small budget and not make a lot of money at work and expect to live in your No. 1 choice,” Ungar says. “That's just not how it works.”
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