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All About Downpayments

How to Save for a Downpayment 

The dream of owning a home of your own will more easily turn into reality if you take some practical steps towards saving for a down payment.

It makes good financial sense to put as much money as you can into your down payment. The bigger the down payment, the less you will have to borrow for a mortgage. This means smaller monthly mortgage payments and it also lowers the total cost of interest over the mortgage term.

Saving for a down payment can be a challenge and it often means sacrifice but there are programs designed specifically to help first-time buyers meet the challenge.

If you have been putting money into a Registered Retirement Savings Plan (RRSP), the RRSP Home Buyer's Plan allows you to withdraw up to $20,000 from the plan to buy or build a house. Your spouse can also withdraw up to $20,000 from his or her RRSP, to make a total of $40,000 available for a downpayment.

There will be no income tax deducted from this money provided it is repaid to an RRSP within 15 years, according to a government repayment schedule. The money you take out must also have been deposited at least 90 days before withdrawal.

You can take part in this plan if you, or your spouse, have not owned a home and lived in it as your principal residence for five years before you take the money out of your RRSP.

You have to enter into an agreement to buy or build a home in Canada that will be your principal residence within a year. You can buy a new or resale detached or semi-detached home, a townhouse, condo, mobile home or an apartment in a duplex, triplex, fourplex or apartment building. Shares in a co-operative housing corporation also qualify.

Once you have entered into the agreement, Revenue Canada's Form T1306 must be completed and handed over to the financial institution that issued your RRSP. This form gives you permission to withdraw money without taxes being withheld. You can take money from more than one RRSP as long as you don't exceed the $20,000 limit.

If you don't think a conventional mortgage - which calls for 25 per cent of the purchase price as a down payment - is within your reach, the Canada Mortgage and Housing Corporation has a first-time buyer's program that offers financing of up to 95 per cent of a home's purchase price. To qualify, you must be planning to buy a home in Canada that will be your principal residence and you can't have owned a home in the previous five years.

Often the biggest obstacle to saving a down payment is simply the inconvenience of making regular deposits to your savings plan or account. However, even minimal contributions add up over time and before you know it you have enough saved for a downpayment.

Many financial institutions now offer automatic deductions to put some of your money into a savings account every week, every two weeks or once a month. Your ability to save money regularly will also stand you in good stead when it comes time to shop around for a mortgage.

REALTORS® are specially trained to help you find the home that's best for you. They are familiar with the way these programs work and their advice can help you start working towards making your dream of home ownership a reality.

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