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June 5th, 2014

Unlocking the key to home ownership


Unlocking the key to home ownership

My wife and I are looking to buy our first home. What advice can you offer on accumulating the money for the down payment?

Owning your own home is probably one of life’s major goals as it provides a sense of security and stability for you and your family.  Despite its importance, meeting this basic need can be very challenging given its cost, as a home will most likely be the most expensive asset you would acquire over your lifetime.  However, equipped with sound information, good financial planning and a healthy dose of discipline, your dream of home ownership can be a reality.

Many of us may not have all the resources to purchase a home on our own, as such, we would need to take out a mortgage.   A mortgage for the full cost of the home is rarely ever granted, thus there will be a need to come up with a down payment that is usually 10% of the value of the home. For a home with a price tag of $500,000, your down payment would be $50,000 or a figure set by the bank. 

You may be thinking that saving for the down payment is nearly impossible.  Don’t worry – if you just follow our tips, you can start savings towards your down payment which can bring you closer to owning your home.

Firstly, determine how much you will actually need for your down payment and how long it will take. Secondly, choose what type of savings or investment account will best suit you – the type selected will be driven by the time period when you will need the money.  If you intend to save money over a period of 1 or 2 years, consider fixed income mutual funds or other vehicles to accumulate savings with competitive returns, easy access, no penalties and minimal investment risk.  Alternatively, saving or investing for a down payment over a long term period of 3 – 5 years or longer can be accomplished with conservative equity mutual funds to grow your money.  These funds will help your money keep pace with the effects of inflation and rising real estate costs.  We recommend that you have a separate fund dedicated for accumulating your down payment.

Thirdly, try and set aside a specific amount of your income at regular intervals, be it weekly, bi-weekly or monthly.  The best way to incorporate systematic saving into your budget is to have a salary deduction of the specific amount to the account at set regular periods.  If you don’t see the money in your salary account, you don’t have the urge to spend it.

You can also access the cash value of your life insurance policies to build up your down payment.  Such option depends on your monthly premium and length of time you’ve been contributing.  You can also accelerate your savings plan by leveraging your skills that will help you generate money.Unexpected windfalls such as bonuses and salary increases can be also saved.  Remember that every dollar counts!

Another important area for assessment is your debt. Strive to minimize debt and spend time paying off those debts that attract high interest rates such as credit card debt.

Overcoming the down payment obstacle depends on how you manage your money daily.The power is in your hands.

Contact the Advisory Services Department on how much you will need to save; how to set up your automatic savings plan and recommendations for appropriate savings/investment solutions based on your time horizon, budget and home ownership goals.