How to save for a house

How to save for a house

So you’ve made the decision to save up for a down payment on a home—yay, you! That’s no small feat in the best of times, let alone in skyrocketing real estate times.

Next decision: where should you park your savings?

One thing is for sure while you work on finding your new abode, you’ll want your money to work hard for you—which means you definitely don’t want to hold your funds in a chequing account earning peanuts.

That means you have two options…

Got nothing but time? Invest

As a general rule of thumb, if you’re not looking to buy any time soon and won’t need your savings for five years or more, you might be better off investing them in stocks, bonds, or ETFs, as generally your returns will be higher.

Know that investing comes with more risk, however, as your money is subject to the fluctuating whims of the stock market.

Short on time? Save

If you want access to your cash fairly soon, as in one to five years, a savings account with a high interest rate is arguably your best bet. With a savings account, your money is less likely to fluctuate over the short term.

Heads up, though—many so-called high interest savings accounts actually offer little to no interest and charge monthly fees, so shop around.

You’ll normally find high interest savings accounts at online banks, since they have lower carrying costs compared to the Big Five. If you feel hesitant about stashing your dream home cash with an online bank, find one that’s a member of the Canada Deposit Insurance Corporation (CDIC), where eligible deposits are fully insured up to $100,000.

A key thing to remember, though, once it comes time to start bidding on properties, you’ll need quick access to your funds, as an accepted offer can happen fairly quickly—especially in competitive markets like Toronto and Vancouver.

If you’ve chosen to hold your money with an online bank, make sure you transfer your funds to a traditional bricks-and-mortar bank, where you can easily get a bank draft or wire transfer, should your offer be accepted.

Good to know: EQ Bank lets you link up to 10 different external bank accounts to your EQ Bank account, so you can transfer larger amounts of money to another bank in just 2 to 3 business days.

This is a more efficient alternative than withdrawing money through Interac e-Transfer®, which allows you to transfer a maximum of $3,000 every 24 hours.

Once you make an offer on a home, it becomes legally binding when you provide an upfront deposit, which is usually required within 24 hours of the offer being accepted.

To be clear, the deposit is not the same as your down payment. Deposits are a way of showing a seller you’re financially sound and eager to take possession.

In Toronto, a deposit is typically around 5% of the purchase price (though often higher for luxury properties), and is paid in the form of a certified cheque or bank draft to the listing brokerage.

Saving up to buy real estate takes serious financial commitment. Whether you choose to invest your savings or hold them in a savings account, the important thing is to start, and to do so as soon as possible.

After all, a smart strategy gets you that much closer to your goal—no more rent, no more landlords.