# Looking for input on my finances



## Zenzin (Mar 12, 2011)

Hello,

I've been reading this forum for quite some time now, but just now decided to make a post in order to gain some input on how my girlfriend's and my finances should be handled.

My girlfriend and I have been together for more than 4 years and are planning to get married in the not too distant future. We both live in Ottawa and have good educations. She has a permanent and secure position with the Federal government at around $51000 per year, and I am currently bouncing between contracts and making around $40000 per year. Hence, my income is never guaranteed, but there are good prospects for greater stability and income in the near future.

We are 28 and 29 years of age and living at our parents places rent-free. This has been our situation for the past 3 years, as we were both in school finishing off our degrees and only received full time employment recently. Staying with our parents for any longer is not an option at this point, so we would need to either Rent or Buy by the end of 2011.

Here is a breakdown of the numbers for both of us:

Assets:

Total Income: ~$90,000 gross
Total in TFSA (two 2.5% interest savings accounts): ~$10,000
Total value of vehicle: ~$15,000 - $16,000 according to auto trader

Debts:
Total Student Loans (3.5% interest): ~$9,000
Total Credit Card (0.99% interest): $4,900
Total Car Loan remaining: ~$9,000

Currently, we are paying $540 a month into the low interest CC to make sure it gets payed off by the time the promo interest runs out, as well as payments of $300 per month into our student loans. According to our budget, we will be putting at least $2200 per month into our TFSAs in order to save for a mortgage down payment. This monthly amount will most likely increase on a monthly basis, as any extra money we have will go towards our savings.

On the RE side, we have constantly been weighing our options. We do not want to purchase any RE beyond the $220,000 mark as a starter home. Unfortunately, the only options at that price in Ottawa are condos. 
Renting a two bedroom or larger one bedroom apartment in Ottawa costs between $950 and $1000 per month.
In either situation, we would not be looking for tenants... at least not at first. We would like at least a few months of privacy for a change 

I guess my question is, what would be the optimal arrangement of our finances in this situation. If we decide to purchase a home, we would need to have our savings accessible in a short period of time. With the recent inflation data coming out, I have a feeling we will be seeing a rapid rise in interest rates starting in the late spring. We wish to get a 120 day locked in pre-approval for a fixed interest mortgage by the time rates begin to rise, but I don't know if we'd be better off just waiting it out while we rent and save. (albeit, less)

Thanks!


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## humble_pie (Jun 7, 2009)

hello zenzin here's my view fwiw ...

you've never lived together. You've both been living with your parents. Not even together at one parent, but separately with both sets of parents.

i personally think rent of 1000.00/month is entirely doable when the family income is 90k per year. You could easily even go to a higher rent, say 1200 or 1400/month. Rental seems exceptionally appealing right now as housing prices quiver, are not rising. There are threads all over this forum that recite how rents are low right now compared to property values (solution: prop values could come down.)

why not get together in a nice rented apartment for a couple of years, pay off the student debt, build up the tfsas, check out real estate on a leisurely basis, & have fun together.

wishing you all the best.


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## Zenzin (Mar 12, 2011)

humble_pie said:


> hello zenzin here's my view fwiw ...
> 
> you've never lived together. You've both been living with your parents. Not even together at one parent, but separately with both sets of parents.
> 
> ...


The thing is though, since we graduated, we've been living together at both our parent's place. We alternate each week. While I understand it's not the same thing as living together in our own place, we do have the capability of tolerating each other for long periods of time


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## Plugging Along (Jan 3, 2011)

Zenzin said:


> The thing is though, since we graduated, we've been living together at both our parent's place. We alternate each week. While I understand it's not the same thing as living together in our own place, we do have the capability of tolerating each other for long periods of time


I agree with Humble, it's a good idea to live with each first without buying right away, even if it's only a year. 

When you're at your parents house, you don't have the same worries of budgeting, the same amount of housework, etc. You tend to be on 'better' behavior.


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## the-royal-mail (Dec 11, 2009)

humble_pie said:


> why not get together in a nice rented apartment for a couple of years, pay off the student debt, build up the tfsas, check out real estate on a leisurely basis, & have fun together.


While I tend not to sugar coat my comments as much as pie does, I completely agree with the above statement. If I were either Suze Orman or a banker, your mortgage request would be *DENIED*. You are simply in way too much debt and have not yet even saved the 20% down payment. I also think it's a very bad idea to jump into a shared home purchase when you're not married. You are not established enough in your life to be looking at buying a house right now. Start with an apartment, build up your emergency savings (for both of you, your TFSAs are an excellent start towards tier 2), pay your debts, save for the down payment. That will take you 2-3 years easily, a very good time to try living together out of wedlock. Then see where things stand at that time. You'll probably have some other emergency or big ticket need between now and then.

Ignore the rhetoric about renting being akin to paying someone else's mortgage (these people always ignore the costs up condo fees, taxes, upkeep on a house, RE fees when you sell, land transfer, lawyers fees etc etc) and don't talk to any RE agents. All they want to do is sell to you and they see starry-eyed young couples all the time. Rent, be free, have fun, good luck!


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## MikeT (Feb 16, 2010)

I don't mean any offense, but that need you feel to buy a house in your position is why real estate prices are so high. Suze might deny you, but you guys could easily get a mortgage for whatever you wanted to buy. They don't turn anyone away.

You've obviously done some homework since you're using the mortgage lingo already. You've also splurged on a new car before you were ready as well. You guys are going to start your marriage off in debt and probably remain in debt until you retire. Perfectly normal it seems for most people now. Somehow we just get used to and comfortable being in debt.

I recommend becoming COMPLETELY debt free before you get your first mortgage. See how it feels.


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## GoldStone (Mar 6, 2011)

Zenzin said:


> Total in TFSA (two 2.5% interest savings accounts): ~$10,000
> ...
> Total Student Loans (3.5% interest): ~$9,000


Assuming you can prepay your student loans without penalty... Take 9K out of TFSAs and pay down the student loans. Doesn't make any sense to pay 3.5% interest while you have cash earning 2.5%. You will save a paltry 90$/yr but it's the principle that counts. Watch pennies and the dollars will take care of themselves.


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## Oldroe (Sep 18, 2009)

What I see is 4900 on the credit card tells me you are living beyond your means and a complete restructuring of your spending is 1st priority.

Start by logging expenses, you need to know were your moneys going.


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## Four Pillars (Apr 5, 2009)

Rent.


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## humble_pie (Jun 7, 2009)

why so much finger-wagging over debt.

this young couple has minimal debt imho, provided they stick to the repayment plan that the OP outlines.

the student loan is 9k, apparently for both of them, and they have both graduated & commenced their careers only recently. This is a better student loan profile than we usually see here in this forum.

there is a reasonable car loan, but price on the vehicle suggests that it's a modest model, so once again i'd give them top grades for their automobile choice.

there is some consumer loan, but they say it's related to a low promo rate & they intend to pay this off ASAP while promo rate is still in effect. Presumably it arises from some purchase before they got their jobs.

critics here should note that CC loan rate is lower than what they are earning on their tfsa. Their stated plan seems to be to pay off this exceptional CC debt & abstain thereafter.

abstaining from credit card use would be a good idea, because they sound like a sensible couple that can surely live on a household income of 90k without borrowing; and what they should be doing is paying off the student loans.

to sum up: well-organized young couple with a great future imho. Guys please don't saddle yourselves with home ownership too early in life. How about saving for something fun like an unforgettable trip together. Honeymoon in paris next april, a year from now ?

wishing you a long & happy life together.


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## Zenzin (Mar 12, 2011)

I really appreciate all the replies I've received regarding our finances so far and I agree with a lot of the points people are making. Yes, we do have debts, but that does not mean we are currently living beyond our means. As one poster stated, the CC debt was acquired over the course of 3 years while I was in school following being laid off from my first full-time employment. I purchased the car before being laid off, foolishly assuming that I would have that job for years to come.
In spite of having to go back to school and work only part time, I was able to keep up with my car/insurance payments and pay for a large portion of my tuition.
We both feel that we're living well below our means presently. Neither of us has been on a vacation in 3 years, and even that was a drive down to New York city for a week. 
The only reason we'd wish to purchase a house in short order is interest rates. We'd much rather lock in for 5 years at 3.9% fixed than wait 2-3 years and have to pay a presumably higher rate. Although, as many people have stated on these forums, house prices may also be much lower in that time period.
I have no doubt that we would be approved for a mortgage of at least $200,000, as banks seem to love people who work secure federal jobs and I know a couple who received a similar mortgage with a much lower income and 5% down. Obviously though, that isn't the point. I want to be able to know which option would net us more money in the end... buying now, or renting first, but I suppose nobody here has a crystal ball 
The ability to live together and do more house chores etc. isn't an issue. We've already been doing that for years.


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## MikeT (Feb 16, 2010)

Zenzin said:


> The only reason we'd wish to purchase a house in short order is interest rates. We'd much rather lock in for 5 years at 3.9% fixed than wait 2-3 years and have to pay a presumably higher rate.


That's the other reason RE prices are so high. Thanks for contributing to the bubble.

Oh and by the way, you guys can qualify for 500-600k. Not 200. Might as well go big. Buy now and lock in that rate! Prices will only be higher in 2 years! Just ask your "realtor." You know, those people who advise you on hundred thousand dollar purchases who have degrees and ample university educations behind them. Who have studied economics and finance in school for years and years and know all there is to know. Realtors. I wish I had the kind of education those realtors have. They know everything!


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## Zenzin (Mar 12, 2011)

MikeT said:


> That's the other reason RE prices are so high. Thanks for contributing to the bubble.
> 
> Oh and by the way, you guys can qualify for 500-600k. Not 200. Might as well go big. Buy now and lock in that rate! Prices will only be higher in 2 years! Just ask your "realtor." You know, those people who advise you on hundred thousand dollar purchases who have degrees and ample university educations behind them. Who have studied economics and finance in school for years and years and know all there is to know. Realtors. I wish I had the kind of education those realtors have. They know everything!


While I understand that persistantly low interest rates contribute to a housing bubble, I did not come here to debate the merits of current fiscal policy, nor did I create my post in order to garner sarcastic replies such as yours.

There are plenty of people on this forum who don't believe in the doom and gloom scenario like Garth Turner does. Would anyone like to give some input on the Ottawa housing market when compared to bubble markets such as GTA/Vancouver? Keep in mind that Ottawa is in a far different economic demographic than other Canadian cities, considering the large numbers of secure and decently paying federal government jobs. IF a large correction were to happen, would Ottawa be affected along the same scale as other cities?

So far, I am leaning toward the rent option, but I also don't wish to miss an opportunity with current interest rates.


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## GeniusBoy27 (Jun 11, 2010)

I think interest rates will go up to historical norms, but I also think the housing prices will be essentially stable or maybe slightly down over the next 4-5 years, even in Ottawa. If you look at the market trends in Ottawa compared to rent. The price is still above market values by about 10%.

It suggests relative stability of the market. 

Having said that, I would honestly keep my eye on the real estate market. There are times when condos/housing prices are far below market values (usually, people who need to sell quickly). I sold my townhome in Ottawa (about 15 years ago), probably about 10% below market value, because I was moving. I don't agree with the "one-size fits all" doctrine. It took my wife and I, 3 years to find the right first home together. In the meantime, we saved and paid down debts.

Like the others, I don't understand why you have a TFSA that pays less than your debts. Pay off your car loan or your student loan debts first, and then reaccumulate gains. It's not unreasonable also to save in RRSPs, because you can use that to help buy your first home too.


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## Zenzin (Mar 12, 2011)

GeniusBoy27 said:


> Like the others, I don't understand why you have a TFSA that pays less than your debts. Pay off your car loan or your student loan debts first, and then reaccumulate gains. It's not unreasonable also to save in RRSPs, because you can use that to help buy your first home too.


We mainly have the TFSA setup for a readily accessible mortgage downpayment, or if we decide to rent, an emergency fund. Although we could theoretically use all of that money to pay off low interest debt, we would end up having to using credit cards in case of an emergency, which is very undersirable. Although, this would also occur if we used all of the money on a downpayment, which is why I am leaning towards renting.


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## Plugging Along (Jan 3, 2011)

Here are my general thoughts.

Even though you want to save your money for an emergency fund, I would use it to pay off your debts or at least alot of it. The reason being that you are trying not pay high interest later in case of an emergency, which is an unknown in the likelyhood of the event. It is known that you are currently paying interest now in order to perhaps prevent paying interest in the future. It makes no sense to do this. You would want to pay off your cc debt now, save the interest. Use the money you are currently using to pay off our credit card, and put that money in the TSFA earning interest. IF you need the money due to an emergency, prior to you reestablishing your emergency fund, you would be paying the interest you are already paying now. You would be further ahead, by doing nothing else.

You shouldn't have any other debt prior to buying your house (maybe student loan, but that's even questionable). That will put you in a better position. 

I would say until you have your debt paid off and a decent down payment, you should continue renting. Don't worry about the interest rates so much. You should be able to afford the mortgage if the interest rates go up. I think many people panick and try to buy before they are ready, and for some it may work out, but for others it could really back fire.


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## Brian Weatherdon CFP (Jan 18, 2011)

PIE happily advises - and I agree - you can *live life *a bit first before owning the millstone (house) & its ongoing maintenance and taxes that you want to put around your neck. You're young, and so many important reasons to create memories now while reducing debt, easing more gently into the responsibilities you'll carry over the next 2-3 decades. Enjoy establishing your relationship over the next year or two.

Financially you'll find it easier and manageable to reduce debt, increase emergency reserve, and establish a down payment toward home you may purchase in 1-2 years.


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## marina628 (Dec 14, 2010)

Set yourself a goal to be debt free in a year then go look for the $200,000 home.I would not buy a house with credit card or student loan debt.You need your 5% down and closing fees as well as a minimum $5000 savings in case you need to repair something , buy appliances.Tighten up your budget and you can make it happen.


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## Financial Cents (Jul 22, 2010)

@Zenzin

We live in a bubble (here in Ottawa).

Government runs the town and largely, we're unaffected by any large swings in house prices. That said, we will be affected when interest rates (not prices themselves) go to "normal" as well they should because I don't think many families in the GOA (Greater Ottawa Area) are earning over $100,000 and by golly you'd need much more than that if you're gonna have a $500,000home, a few kids running around plus minivan payments.

I think most people have over-mortgaged themselves and the market climate in Ottawa is not immume to that. I would suggest being as debt-free as possible before you buy your home. That means no student debt, loans, credit card debt or other. Save your money and be patient. Adding more debt to existing debt is never a good idea. That's just me


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## OhGreatGuru (May 24, 2009)

I would advise renting for a while until you have paid off debts and saved some down payment. In the meantime do some "windowshopping" for houses to see what you want/need/like in one, and where in the city you want to live. No need to rush. Ottawa real estate is stable compared to Vancouver, Calgary, Toronto.


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## GoldStone (Mar 6, 2011)

Financial Cents said:


> We live in a bubble (here in Ottawa).
> 
> Government runs the town and largely, we're unaffected by any large swings in house prices. That said, we will be affected when interest rates (not prices themselves) go to "normal" as well they should because I don't think many families in the GOA (Greater Ottawa Area) are earning over $100,000


Wrong. 2005 stats:

http://www.ottawa.ca/residents/statistics/data_handbook/population/table_29_en.html

98,485 households out of 321,090 earn more than 100K. That's *30.7%*. The ratio is quite staggering. And remember, that's 2005 dollars.

Given that Ottawa prices are quite a bit lower than in Toronto (not to mention Vancouver), it's hard to say if we are in bubble or not. Depends on the area, I guess.


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> Ottawa real estate is stable compared to Vancouver, Calgary, Toronto.


Average resale price is up 6.8% from Feb 2010 to Feb 2011.

IIRC, that's close to the average annual gain over the last decade. I wouldn't call that stable. Average incomes surely didn't go up as much.


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## MikeT (Feb 16, 2010)

I talked to a REALTOR the other day. He said that housing prices will go up 10% per year indefnitely and forever, so you need to buy as soon as possible. There's no point trying to save up, because you can't save faster than housing prices will go up.

On top of that interest rates will go up soon, so you need to lock in your rate as soon as possible. Don't even wait one day he says. Just get a cash advance from your credit card for the down payment. And buy the biggest house you can get. Since it will just keep going up, you should get the biggest most expensive property possible to leverage your investment.

He knew everything. He was driving a mercedes for crying out loud. Trust REALTORS!!! That is how you get rich. Look at Tom Vu!!!


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## Four Pillars (Apr 5, 2009)

MikeT said:


> I talked to a REALTOR the other day. He said that housing prices will go up 10% per year indefnitely and forever, so you need to buy as soon as possible. There's no point trying to save up, because you can't save faster than housing prices will go up.
> 
> On top of that interest rates will go up soon, so you need to lock in your rate as soon as possible. Don't even wait one day he says. Just get a cash advance from your credit card for the down payment. And buy the biggest house you can get. Since it will just keep going up, you should get the biggest most expensive property possible to leverage your investment.
> 
> He knew everything. He was driving a mercedes for crying out loud. Trust REALTORS!!! That is how you get rich. Look at Tom Vu!!!


Lol. +1


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## Baby$Doll (Mar 21, 2011)

Wow, this is basically the exact same situation I was in 6 years ago, although we did not have any debt, but even the salaries/job stability was the same. 

I'm very happy with the decisions we made, so I'll let you know what we did. 

Husband (bf back then) and I were together for 3 years and he was pressuring me to move out and rent asap. I did not want to because I wanted to save for a downpayment and buy since there was no rush for us to move from our parents place. We saved like crazy for about a year and a half and came up with an 80K down payment. It's crazy what you can do if you just put your mind to something - and we really didn't have to sacrifice much. Hence, I would highly recommend you stay at home until all your debt is paid off and you have a good down-payment. If you really put your mind to it and watch expenses such as eating out/clothing/entertainment, it's attainable in a short period of time and well worth it, you can also put the 20K you would have spent on rent toward your downpayment.

We built a home a little over four years ago for 240K - so had a mortgage of 160K which was extremly easy to handle on our incomes with no debt (we even doubled our payments for most of the mortgage). 

If you know you can handle living with each other, I think you should just stay home until all your debt is paid off and then buy a house, but give yourself a time limit (say 6 months). This way, you have a huge goal you are working toward and you will really be amazed at how easy it is to save.

In the meantime, you should do a lot of research and try to establish a budget for as if you were living with a mortgage (don't forget to include utilities, property taxes, maintenance, cable, phone, internet, insurance, and condo fees - also take into consideration that you will have to furnish the place). You should also continue to shop around for the perfect house and get a pre-approval, you can always get another if you don't buy quite yet.

Also, make sure you don't forget to consider the cost of condo fees. I know some of them are as high as $400+ per month. This is an extra $80 - 100K in a mortgage. Personally, I would prefer to buy a house for 300 - 320K than a condo for 220K with the $400 condo fee.


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## Zenzin (Mar 12, 2011)

I would like to thank you all for your input and thought I'd give an update on the situation. Despite some people's (MikeT) apparent lack of faith, we did actually take your suggestions under advisement and decided to rent our first common residence. 

We are now in the process of moving into a $1250/month rented condo in a much more central location than our house purchase would have been, which will save on travel time and costs. My girlfriend will be paying the rent, while I'll be paying the car payments and utility bills. Everything else will be charged to a points-based CC and equally payed off at the statement date. (We have already been doing this for a few months anyway, and it has worked out amazingly)

After buying (or receiving from family) all required furniture etc., we have managed to leave our savings untouched and will be beginning the long road of debt payment, perhaps with a short stop for a vacation along the way.

While I understand that some folks may be able to stay with their parents for a longer period in order to save, I believe that getting out there on our own will give us a greater sense of purpose and motivation.

Wish us luck!


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## Ben (Apr 3, 2009)

Hey hey, good work, good luck!


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