Many young Canadians share one common goal after they finish their post-secondary education: Homeownership. However, in today’s world, unless you’ve hit the jackpot or have earned a job that pays you a six-figure salary, chances are your dreams of homeownership are proving to be more difficult than expected. Couple that with any lingering student debt, and your dream of owning a home may seem like a goalpost that keeps moving further and further from your grasp. But the possibility of becoming a homeowner doesn’t have to be a goal beyond your reach. We’re sharing some ways you can save for a down payment while also paying off your student debt.
Start Planning Now
The old saying “the sooner, the better” couldn’t be more true when it comes to putting a plan in place to achieve your financial goals. So where do you start? The first step would be to put together a budget to get a holistic look at all your incoming and outgoing money. Are student debt repayment and saving for a down payment on your list? If not, make sure they are designated line items in your budget. Then, start mapping out your goals and your desired timeframe to help you determine how much money you need to set aside every month to achieve these goals. Remember, it should be a realistic amount that can easily be worked into your budget. Once you’ve allocated a set amount of money towards your goals, commit to it. If you are unsure how much to allocate towards a down payment or your debt repayment, speak to a financial advisor who can help you determine how much you can – and should – save towards your financial goals every month.
Cut out what you don’t need
Not finding much excess cash in your budget to allocate towards your financial goals? You may need to reexamine your spending habits. Your budget should incorporate three categories: needs, wants, and savings/debt repayment. Needs include rent/housing, groceries, utilities, phone, electrical bills, car payments, and other fixed expenses. Wants include subscription services, shopping trips, restaurants, snacks, gifts, and expenses that fall under self-indulgence. Finally, savings/debt includes RRSP contributions, student loans, credit card debt repayments, TFSAs and more. We hate to be the bearer of bad news, but your needs, and savings/debt, should take precedence over your wants. Look at your monthly income and determine how much goes to categories one and two. If you find yourself spending 50 percent of your monthly take-home income on your needs and 50 percent on wants, with nothing allocated towards student debt or savings you need to rework your budget. Go back to the drawing board and eliminate half of your indulgent expenses. If you are able to allocate 30 percent of your monthly income to the third category, you’ll be setting yourself up on an ideal path to say goodbye to your student debt and hello to being a future homeowner.
Consider alternative options
Student loans, high costs of living, and inflation may slow down your home-buying process, but there are additional options to consider to get you closer to unlocking the keys to homeownership. If you find your monthly income is insufficient, especially when trying to eliminate your debt, pay for your necessities, and save – you may need to explore alternative sources of income. Many young Canadians are taking on a second job or side gig. This extra income can help speed up your student debt repayment efforts and bolster your down payment savings.
Alternatively, if living rent-free with your family is an option for you, this is a great way to quickly save your money while also paying down your debt. Another option that is gaining popularity among Canadians is home co-ownership, which is the purchase of a home with another party (usually a close family member or friend). This option allows prospective buyers to break into the real estate market sooner than if they were to do it on their own, and it alleviates a lot of the financial stress that comes with owning a property because you don’t have to save as much for a downpayment, and you can split your monthly bills and any other unexpected costs that might arise.
Get to Know Your Credit Score
When applying for a mortgage, your credit score matters. So, what factors affect your credit score? Whether it is rent, utilities, student loans, or credit card bills, paying all your bills on time can significantly impact your credit score. In Canada, credit scores range between 300 – 900, with scores between 660-724 seen as a good credit score. The higher your credit score, the better your chances of getting approved for a mortgage for your first home. So, paying your bills on time pays off! Before starting the home-buying process, review your credit report to get a better sense of whether buying a home is a reachable goal for you now or something you must work towards as your financial circumstances improve. If you’re drowning in student debt, it’s good practice to make payments on time every month so you can make a noticeable dent in the amount you owe. Remember, your outstanding balance will determine whether or not you get a mortgage and how much you’d get approved for, so the less debt you have, the better. To see where you stand, you can request a copy of your credit report for a fee from one of the two credit bureaus in Canada: Equifax Canada and TransUnion.
Key Takeaways
Living in a time when groceries, gas, housing, and other expenses are at an all-time high is hard enough, and it’s even harder when you’re drowning in student loans. Your dreams of buying a home may seem a long way off but it should not be forgotten. Focusing on relieving yourself of your outstanding student debt should be your top priority because it will help you move closer towards buying a home. Engaging in practices such as being on top of your credit score, getting ahead on your saving journey, cutting out indulgences, and exploring your options are just a few of the ways you can be proactive in eliminating your student loan debt and saving for your home.
Achieve your financial goals with the help of your local credit union
Credit unions are an excellent option to help you achieve your financial goals. Whether you need help building a realistic budget, managing your debt, saving for your down payment, or applying for a mortgage, your local credit union can help. Not yet a credit union member? Find your nearest credit union here.