# Planning to buy in September, here's our current standing...



## Vej (Aug 26, 2009)

Hi All,

My partner and I are planning on purchasing a condo in September. I'm going to summarize our financial standing, and my basic plan, in hope that I'll get some good advise from the benevolent Canadian Money Forums community 

I have:

Savings/RRSPs
$6,000 in savings
$4,400 cash in an RRSP
$12,000 cash in an RRSP which I borrowed as an advance on the 9th of June. Interest rate on the loan is 3.5% Available for withdrawal under HBP by Sep 9th.
~$10,000 in TSX.V shares in an RRSP. The shares I hold have no real market for sale, so I may not be able to liquidate them for this down payment. 

Debt
$12,000 RRSP advance. Term is 1 year, payments are monthly at $1,020. Interest rate is 3.5%
No other credit card debt. We own our vehicle outright, we use a Visa card for all house hold expenses but never carry a balance.

My partner has student debt of approx $12,500 which she is paying down on a monthly basis. 


Income;
My salary is $100,000
My partners annual income is approx $25,000. She's a recent teacher graduate, and with all the education cuts, there is not much out there for her. She's working the summer as a barista.


We plan to purchase life insurance within the next month. I just turned 30th, and she is 29. Both great health, non-smokers. I do ski and mountain bike, so I think that will jip me out of the preferred-plus category. 
We are expecting a baby in January! 


For the mortgage. Our self imposed limit is $400,000, but I'm hoping we can stay inside $350,000.

We are saving about $5,000 a month, with another two months until we are ready to purchase. 

For down payment, I think that gives us a worst case scenario of:
$20,000. This is assuming that I need to pay off all the RRSP loan in order to qualify for a loan. 

Better case scenario, we could have about $30,000 to $40,000 down with a little family help.

I'm not sure if we should apply for the mortgage jointly, or should I do it just in my name, as her credit history isn't the best. Two minor debts (less than $200) went to collections in the last year. We are cleaning up her debt as quickly as possible, but we don’t want to pay it all off at the expense of having a little extra for downpayment.

I want to assemble a rainy day fund of minimum $5,000 by the time our kid arrives.

Is there anything I can do, or should look into, in order to maximize our ability to get a good mortgage, and life insurance?

Thanks in advance for any advice!


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

You have done really well on the RRSP side as well as on being able to 'save' $5000 per month. However, I am concerned about a number of things. 

1. the $25K approx in [good] debt that you are carrying
2. value of your desired house.
3. the amount you have chosen for rainy day fund goal
4. that you are involving family to get $ help from them for a non-emergency item (house)

There's a LOT of good stuff going on here but I would suggest the following:

1. pay off that $25K FIRST before approaching the bank for a mortgage
2. $350-400K? Why so expensive? With your income I would be surprised if the bank would give you such a mortgage. But even if they do, why would you want to? That kind of a mortgage is IMO foolish for such a young couple, esp with a baby on the way. Babies are $$$! Where will the money to feed and clothe jr. come from with such a mortgage?
3. With the kind of house you want to take on, IMO $5K is nowhere near sufficient for a rainy day fund. They say you should have 6-12 months cash living expenses available so you could live for that long unaided. So mulitply your expected (or even current) household living expenses (and NOT just the bare bones basics) x 12. That should be your MINIMUM rainy day goal. You should ALSO have a contingency fund in case the roof needs repairs or your car breaks down, so that the 6-12 living expenses rainy day fund (RDF) will be unaffected if the roof springs a leak. The $5K you propose will be gone in a heartbeat and if adversity strikes your entire family will be in grave, immediate financial danger.
4. I am concerned that you are involving other family for your family purchase. Shouldn't you be self-sufficient? Why would you incur debt with them or anyone for this? Your desire for a new house is not an emergency or life crisis. IMO you need more time to save the downpayment for your house after beefing up your rainy day and other funds.

If you give yourself more time it can only help you. IMO you're trying to do way too much, way too quickly.


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## Four Pillars (Apr 5, 2009)

I think Royal is right - you are better to wait.

I made the mistake of selling my house/wedding/buying new house/doing gut reno/ new baby all in the same year and it didn't go well at all.

Can you just rent for a while? New babies don't take up much space. Maybe shoot for a purchase once then child turns 1 or so.


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## dilbert789 (Apr 20, 2010)

I'd rethink the condo if you can still. 

My situation is close to yours,however we bought a house almost 3 years ago for about 2x what our combined yearly salary before tax.(yours is 3-4x) The total mortgaged amount was around 220k being that we make about 110,000 together. I regret it, I love our house, but see friends of ours that have mortgage payments that are literally half of ours and it would be MUCH easier to be saving for retirement / investing or be able to pay off the mortgage that much faster.


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## jamesbe (May 8, 2010)

dilbert do you have other debts and such?

My mortgage is now $260k (was $300k 2 years ago), I make about $120k a year and am able to save $4000-$5000 a month easily, seems like a lot to me... I'm certainly not living on bread and bologne and I have a horrible habit or racing cars and burn through 10k+ easily in the summer months on gas and tires.


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## seven3 (Apr 4, 2009)

I completely agree with the previous advice to rent for a while.

Aim For a Larger Down Payment
========================
Rent for a while and save up a larger down payment. Aim for a 25% down payment.

This may sound crazy in today's age of consume now, mortgage ourselves to the fullest mentality, but the impact of the larger down payment is huge: 

1) You decrease your mortgage amount which reduces the monthly payment
2) With the lower monthly payment you can save more money
3) With the money saved you can pay down the mortgage faster

There was a time when $400k mortgage on $125k of income would be considered CRAZY...I am afraid the culture has changed whereby people think $500k mortgages are "nothing".

Ignore the marketing BS of "renting is paying someone else's mortgage". That is true over when renting over the long term. Renting for a short period of time with a strategy of saving as much as you can will serve you well in the long run.


Emergency Fund
============
You need more than $5k. If you do end up with a $400k mortgage, that 5k is evaporated with 2 months of mortgage payment. 

We haven't even thought about the cost of diapers, maintenance, etc.


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## hystat (Jun 18, 2010)

Another thing to think about:

Stability. 
With your partner in the job market, ask yourselves if there's any chance you would want to move or relocate in the next 3 to 5 years.

If you have to sell that condo in the short run, the cost to unload it can taste quite bitter. 6% real estate comm. on 350K is $21,000
$21,000 pays a lot of rent.


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

That's right. Also the property taxes and condo fees on a place like that will eat you alive.

Then the next day your company moves, you have car accident, get disabled, lose your job. The OP has left them NO way of dealing with this. On top of it they are borrowing from family for this. When you REALLY need their help they won't have the money because they already lent it out earlier. That is a very big hole to get out of and you could burn some bridges.

Can the OP please come back and reply to what we have said to you.


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## osc (Oct 17, 2009)

Don't buy now, you cannot afford a 350k mortgage with your income. I think there are good chances for the real estate bubble to burst in the next few months, especially in the double dip scenario. 
If you need to pay $400k for a condo, you should consider moving to a better/cheaper area and buy a real house (after the bubble burst), considering you are planning to have children.


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## Y&T2010 (Dec 29, 2009)

Yeah, I would aim for the 25% downpayment too. Sounds like you guys are good savers, but with a huge mortgage, things might end up being really tight- especially with a new baby on the way.

The feeling of being forced to be paycheque to paycheque is probably not a nice one at all... 

Being a first time home buyer, I would caution on such a huge mortgage (I wonder if you are from Vancouver??) though it's almost impossible NOT to do in Vancouver.

I have a friend of a friend of mine who are paying 70% of their incomes to their mortgage. They have about $100 a week to spend on groceries and other non-fixed items.


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## dilbert789 (Apr 20, 2010)

jamesbe said:


> dilbert do you have other debts and such?
> 
> My mortgage is now $260k (was $300k 2 years ago), I make about $120k a year and am able to save $4000-$5000 a month easily, seems like a lot to me... I'm certainly not living on bread and bologne and I have a horrible habit or racing cars and burn through 10k+ easily in the summer months on gas and tires.


Other than the house our next payment is a over priced car at $425/mth
The two of us when making our full salaries make about $3000 every two weeks after tax or about $6k over a month. Take out $1600 for mortgage, $1000 for car payment, insurance(2 cars + bike) and life insurance, $300 on cable, phone(home + 2 cells) internet, $350 on groceries, $150 on pet food and vet bills... We can chew through money like it's a life goal....

And this spins off another thread.


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## Vej (Aug 26, 2009)

Hi All,

Thank you all who have replied, and sorry for taking so long to get back to you all. 

I don't have time to full reply right now, but I will in a few days. I'm going to adjust my plans based on a lot of the feedback here, however I still hope to buy a place by November. I have had four rentals sold out from under me, and we are resolute in purchasing our own home. 

Yes we do live in Vancouver, hence the "huge" $400K mortgage. Though, we are setting are sights lower and will hopefully get something inside $350K.

That's all I have time to post on right now, I will post my revised plan.

Thanks again for all the great feedback, much appreciated.


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## Cal (Jun 17, 2009)

Whats up with the '~$10,000 in TSX.V shares in an RRSP. The shares I hold have no real market for sale, so I may not be able to liquidate them for this down payment.'?

I would use the next few months to try to liquidate them at a decent price.

I would also caution of holding any stock/equity/warrant or whatever that is illiquid. Other than a GIC if you are ultra conservative, and only care about preservation and have no interest in a greater return.


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## Vej (Aug 26, 2009)

Cal said:


> Whats up with the '~$10,000 in TSX.V shares in an RRSP. The shares I hold have no real market for sale, so I may not be able to liquidate them for this down payment.'?
> 
> I would use the next few months to try to liquidate them at a decent price.
> 
> I would also caution of holding any stock/equity/warrant or whatever that is illiquid. Other than a GIC if you are ultra conservative, and only care about preservation and have no interest in a greater return.


My plan is just that, to gradually try to liquidate those shares at a reasonable price. I agree about holding illiquid assets.


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## Vej (Aug 26, 2009)

Update;

So, we have decided to hold off on buying a place this year, which is a relief. This allows us to take some of the advise from this thread and put it into action. We may look at buying something next year, depending on how the savings go, but we are not set on next year either.

We will start by paying down my partners remaining debt, and then continue saving as much as possible. I need to decided what to do with my savings in the mean time though. Starting a TFSA for both of us is a pretty obivious start, and I plan to contribute more to my RRSP before the end of the tax year so I can get more of my income tax back.

But beyond that, what should I do to maximize growth of my savings? I want to see some reasonable gains/interest but I'm not that keen on high risk. Where to start?


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

For now, focus on getting the actual savings in your hand. You've got a lot on your plate. The point of emergency savings is not growth but the presense of that cash available whenever an emergency arises. If you take low risks with the cash you'll be getting maybe 1% for it, not really worth it in the short term. Concentrate on saving cash for the next year and don't rack up any further consumer debt. Change starts now.


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## Sampson (Apr 3, 2009)

Vej said:


> But beyond that, what should I do to maximize growth of my savings? I want to see some reasonable gains/interest but I'm not that keen on high risk. Where to start?


Since you are planning to use the money to buy RE within a year, you should leave the money as cash in a MMF or GIC. Why expose this cash to any risk at all? If you try to maximize growth of this money, you run the risk that you won't have enough in a years time to actually buy your condo.


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## andrewf (Mar 1, 2010)

If you want somewhere to park your cash, I recommend Ally for high interest savings account at 2%.


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## Murph (Sep 9, 2009)

Sounds like your in a rush to buy. I agree with what has been posted, pay down what you owe (student loans and other debt) and save for a larger down payment. Buy on the downside, and that is where house prices are headed.

Don't believe me check out this article:

http://www.theglobeandmail.com/repo...fall-for-first-time-this-year/article1640760/

Wait a year or two, you will be able to get a much better deal.


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## hboy43 (May 10, 2009)

Hi:

My current thinking is that the optimum quantity of real estate to own is zero. Personally heading from two down to one house this year. If health issues ever force me off the acreage here, I'll spend the rest of my life as a renter, SWMBO permitting.

hboy43


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## canadianbanks (Jun 5, 2009)

I wouldn't buy real estate unless I can put at least 20% down and this is especially valid for condos. It looks like the Canadian RE bubble is finally bursting and condos are affected the most in such downturns. If you wait 2-3 years you might see condos going with 50% discount compared to what they fetch now.


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