House downpayment on a 40K salary

By: Cityscape Real Estate

House downpayment on a 40K salary

Tags: Real Estate, House, Downpayment



Buying a house is at the top of the list of life-goals for millions of Canadians in all age groups. Whether it's a detached, townhouse, condo, semi-detached, or even a cottage, the dream of owning your own property gives people a sense of freedom and accomplishment and can motivate you to work hard and save money. For many of us, however, the saving money part can seem extremely daunting once you look at the type of money you need to save in order to make a downpayment to finance this dream. Especially for those of us that are not lawyers and investment bankers earning the big bucks.

In today's blog post we are going to take a look at how millennials, anyone new to the workforce, or anyone earning around 40K annually can save enough money to make a downpayment on a home, and how you can get into the real estate market with this type of salary.

Priorities
If buying a home is a priority for you, there are sacrifices that you will need to make to achieve this goal. Take a look at how you are spending your money and find ways to tighten up that change purse, so to speak.

If you are buying coffee out every day or eating take-out for lunch these are two easy ways to cut back on spending. It may not seem like much but if you can cut out these expenses and instead put it towards savings it can quickly add up. Buying a coffee and lunch every workday can cost upwards of $3500 annually once it is all said and done.

Are you planning a vacation or two this year? As nice as it is to fly to exotic destinations this is another area that you can quickly cut spending and put it into saving towards a home.

This may seem obvious to some but many people overlook this simple tip.

Schedule
When talking about buying a house you may find yourself online looking at homes in a desired area and wanting to move in today. This can be frustrating knowing that you can't, but it can also be a motivator to help you set goals and a plan so that you can move into that home in the not so distant future. In the next step, we will take a look at how much you should be saving each month in order to accomplish this goal.

Once you know what you will be saving each month you can calculate how long you will need to save for until you can make a downpayment on your first home!

Discipline
Saving for a home is going to require financial discipline no matter how you look at it. You can have great intentions all you want but if you are not taking money from each pay cheque and putting it into a separate savings account the odds that you will not stay on schedule are going to increase.

Let's start by taking $400 from each pay cheque. This may seem like a lot to save but in reality, it is still less than 30% of your take-home income if you make 40K annually. If you can not set aside this much per pay cycle you can still follow along in our example, you will just need to save for a longer period of time.

Using the $400 per bi-monthly pay cycle example, that equals $800 monthly and a whopping $9600 annually. With close to 10K a year in savings you can save enough to make a 5% downpayment on a $500,000 property in less than 3 years of savings, or a 10% down payment in around 5 years.

Strategy
Once you have your schedule in place and have a realistic timeline for when you would be able to make a downpayment on a home you can start to plan your next steps. One crucial decision that you will have to make is the location of your future home. Do you want to live right downtown in a condo? Would you rather have a multi-level home? Think about what is important to you now and what might be important in 5 or ten years.

Everyone needs to make these decisions for themselves based on what is best for them, but it is important to consider that your first home will not be your last home and that there are benefits to just getting into the real estate market as early as you can. You may not be able to buy your dream home right from the get-go – or even buy in your dream location with your first purchase into the market. For example, if your end goal is to buy a detached house in Toronto, you may have to first buy a property outside of the city to build some equity. Or, buy a condo in the city and hold onto that for a few years until you are able to get into something a bit larger.

It is not unrealistic to think that in 5 or 10 years that you could be earning more than you are now. Always buy what you can currently afford but know that if the value of the property that you buy now goes up over the next 5 to 10 years and so does your income you will be in a great position to buy your second property that is closer to the home of your dreams.

Summary
Buying a home is still an attainable goal for millennials even though it may seem out of reach. Set your priorities in terms of where you are spending your money, pay off any debts that you have as quickly as possible, and then start saving for a downpayment on your first property. Be realistic about what type of property you can buy and where this property is located - and get some advice from a trusted realtor before taking the plunge!