# Stretching too thin?



## Compounding1 (May 13, 2012)

Hi all,

Recently I've been looking at houses in my area and even got pre-approved. I was pre-approved at 225k purchase price with a salary of 40k (stable job, been here 3 years now) and I have about 45k in assets(includes rrsp,tfsa etc), zero debt. Of that I would be using around 30k (15%) for my downpayment so far and am hoping for a purchase price around 190k. Not a big house but a comfortable starter home where I can at least spend 10+ years. 2bedroom 2 bath type deal.

I'm 24, turning 25 in a couple months and currently live at home. My parents have been hinting of me moving out, and because of a situation with my gf's living arrangement ending (her basment apartments landlord is selling) now is looking like a good time to buy.

She would be living with me, but I want to make sure I can afford the house on my own without assistance. She would only be buying groceries and maybe internet anyway. 

I've run the numbers and my max expenses for everything would be around 2000$ a month, while my net is about 2620/month. These numbers don't include anything she would be giving me but it's everything from food to gas to insurance, internet, etc.

I think 600 a month is workable to use towards saving and hidden costs that come up and I guess everyones tolerance is different but is this stretching it too much? I don't know and most of my friends still live at home anyway with no ambition to be on their own so they're no good to ask. Parents are biased 

I should also note that I have a motorcycle that I rarely use. It costs me $110 a month for insurance and I've been thinking about selling it because I don't use it, and that money I got from the sale could get me close to 20% down to avoid insurance fees and then the monthly income I saved would help. But then again in a few months my insurance on it will drop by $50 a month from turning 25. 

In before none and "housing is going to crash" , but if I went with renting I feel like I would be throwing money out the door since the costs are pretty similar and I would need to rent at least a place for 1000/mo to avoid terrible areas.

Thanks for any input.


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## none (Jan 15, 2013)

I won't go into the housing crash thing I will only point out that the whole 'rent is throwing money away' is largely a RE con. It's generally not true and many would argue that buying a house now is actually the act of throwing money away (because in many analyses owning is more expensive than renting an equivalent property).

What I would say is be careful of buying a house and having a long term partner move in with you. If you purchase the house and you live together for a year you are then common law married. If the house increases in value significantly, your gf (would be ex-gf) would be entitled to any gains from the house. I've seen this happen before.

Anyway, terribly unromantic but a harsh reality.


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## peterk (May 16, 2010)

none is spot on with both points.

What's the annual rent compared to purchase price on the equivalent home in your area? In much of the country it is 5-6%. If your area is one of these we shouldn't even be having this conversation. Rent.

Buying a house on your own and moving your GF in who "just pays a few expenses" is precisely the situation that's going to screw you over the absolute hardest when you "divorce"...


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## none (Jan 15, 2013)

Funny thing is it was my female friend who got scorned and I told her to go after her ex-boyfriend for the house gain. She went to a lawyer got it confirmed and a week later she was $50K richer (they settled). That guys was a douche.


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## sags (May 15, 2010)

The bank qualified a 225,000 mortgage on a 40,000 income?

A perfect example of why the government is concerned about CMHC liabilities.


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## Compounding1 (May 13, 2012)

sags said:


> The bank qualified a 225,000 mortgage on a 40,000 income?
> 
> A perfect example of why the government is concerned about CMHC liabilities.


Sorry I should clarify that it's 225k purchase price with a 30k down payment. So the mortgage is 195k. Still high, but I never said I was going for max either. The price range I'm looking at, the mortgage would be around 160k. 

I have no problem signing a cohabitation agreement with my gf and her only paying things such as groceries, gifts, etc. Her name won't appear on any of the bills but it is a valid concern that I have thought about so thanks for that. Also I thought property division in common law was 3 years together not 1 year?

And like I said the area where I live I'm looking at 1100 for a decent place to rent. My mortgage and property tax would be less than that and at least a portion of that mortgage goes to equity, and I'd still have to pay for the utilities renting. There is a lot of student housing where I live which I think is why rent prices are so high. People can charge high rent because students will pay it (gov't OSAP will pay it actually).


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## Nemo2 (Mar 1, 2012)

Friend of mine had the woman, (with whom he subsequently split), sign a rental agreement showing her as his tenant.


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## marina628 (Dec 14, 2010)

Nemo2 said:


> Friend of mine had the woman, (with whom he subsequently split), sign a rental agreement showing her as his tenant.


That will be great except for when they split and she can prove they were in a relationship ,you know the face book pages ,yearly holidays etc.They are better off renting for a year together ,sharing the expenses and then if it works out they can buy using his down payment but do a deal that his down payment comes back in his hand if they have to sell due to a split and do 1 year mortgages in case it does not work out.Another good reason to move out and rent first is because on paper your numbers look tight now but reality may be even tighter.


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## blin10 (Jun 27, 2011)

just sign cohabitation agreement and it should be valid even when you get married, problem solved in that area....


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## Compounding1 (May 13, 2012)

blin10 said:


> just sign cohabitation agreement and it should be valid even when you get married, problem solved in that area....


Yes, I wasn't expecting all this relationship advice on the money forum lol. Back to original question though. Anyone have thoughts on the money aspect please?


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## GoldStone (Mar 6, 2011)

Do you have ambitions to find a better paying job? House is an anchor that limits your mobility.


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## uptoolate (Oct 9, 2011)

Just me but I'd rent. You're young and not yet fully committed to your relationship. Rent and see if it works. Plus as mentioned, you have more mobility. Plus as mentioned, one doesn't always make money in real estate. My GF and I bought our first house at ages 30/35 in 1991. We did some renos on it worth about 40k and still sold it for 10% less than we bought it 6 years later not including fees. Some think the market is poised for a fall, i have no idea and in fact I was aghast at the Vancouver market in 2004 and refused to buy in - would have been one of the biggest wins ever if I had so who knows. There will always be time to buy a house.


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## MoneyGal (Apr 24, 2009)

Compounding1 said:


> Yes, I wasn't expecting all this relationship advice on the money forum lol. Back to original question though. Anyone have thoughts on the money aspect please?


It isn't relationship advice. No one advised you to bring her flowers or "never go to bed mad" etc. :chuncky:


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## sags (May 15, 2010)

If you have only 600 a month left over every month, I would recommend you have enough of a savings fund to pay 6 months worth of bills........just in case.

That would give you peace of mind, and the time to address any changes needed, in case you lose your job or want to sell the house.


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## fraser (May 15, 2010)

We sold our house and travelled. We had decided to buy again when we returned. But we are going to rent. We want to try out condo living and we feel that prices may be a tad high. If you subtract the condo fee from our rent, the net monthly rent is $1250. Identical condos in this building are selling for $525K....and there has been at least one assessment that we are aware of. After of few months of looking, and then seeing the rental rates, I feel much for comfortable with renting. First time is 30 years.


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## Compounding1 (May 13, 2012)

GoldStone said:


> Do you have ambitions to find a better paying job? House is an anchor that limits your mobility.


Yes and no. I actually enjoy my job right now so I'm happy currently. I only have a 20 minute drive to work and if I bought a house in this area it would probably be more like 15 mins. Plus the job I have now does look really good on my resume, especially for my age. So after a few years of experience with it, then yes I will definitely want something that pays more. Also if I wanted to trade the short commute for more money I live close enough to a big city where I could commute 1hour+ to get the bigger pay cheque. Not something I am interested in right now though. So even with having a house it would still be possible to switch jobs to something down the road.

Thanks for the suggestions sags, I was thinking of having around 10k left in a savings account for emergencies but maybe I'll bump that up a bit more to be on the safer side and closer to 6months worth of expenses.

And the main reasoning I'm going through all the hassle of saving and making sure I can afford on my own is in case anything were to happen with gf. I would not want to move just because I parted with her, but I will have her sign something to be on the safe side if something like that were to happen. So thanks again on that front.

I am thinking of saving for a couple more months now which is probably a smarter idea. Would allow me to get that emergency fund topped up a bit more. I hear houses can be cheaper in the winter too ;p


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## Nemo2 (Mar 1, 2012)

marina628 said:


> That will be great except for when they split and she can prove they were in a relationship


You may well be correct here....I wasn't privy to any relationship dissolution agreements, so the rental agreement may have been an exercise in futility, (somewhat like the erstwhile relationship, no doubt. :wink: )


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## My Own Advisor (Sep 24, 2012)

For what it's worth...rented until 27. Bought my first house then, a new build in Ottawa-area.

I didn't regret renting one bit and waited until we had 10% down to buy the home.

The thing with a new home, first home is, you're going to feel compelled to spend more money. Newer furniture, window treatments, new paint, appliances, the list goes on and on. You need to factor that in. I'm glad back then I bought a house I could afford, with all those things above factored in as well. 

I think you definitely need to afford the place on your own, without any financial assistance (from others, i.e., no girlfriend contribution). With a house, you'll also want to consider have a few $k in an emergency fund. Stuff breaks in a house and you need to plan for the unplanned. With all that said, you really want a house, you can afford to not spend your emergency fund, you have money left over after some incremental home improvements, then the choice is yours.

At least you're thinking things through, good on you to do so!


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## Sherlock (Apr 18, 2010)

I'll also agree with the majority and say that yes you will be stretched too thin buying a house on your income. Save a bigger downpayment and/or wait until you increase your income.


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## sharbit (Apr 26, 2012)

GoldStone said:


> Do you have ambitions to find a better paying job? House is an anchor that limits your mobility.


lol

http://canadianmoneyforum.com/showthread.php/15717-Rental-Restriction-help


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## Four Pillars (Apr 5, 2009)

Just say rent.


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## sharbit (Apr 26, 2012)

The major reason why I would say rent for a while is that you've never lived on your own; or with anyone else other then family. When you move out there's certain things you'll notice about your first apartment that you might want to do with/without when you buy. Say for example you buy a condo downtown or a house near a traffic light; move in and then realize the noise from traffic keeps you up. It will cost you 6% of principal to fix your mistake.

If you were to buy a 20,000 car you would probably test drive it first. Why not do the same for a 200,000 house.

Good luck.


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## Guban (Jul 5, 2011)

sharbit said:


> The major reason why I would say rent for a while is that you've never lived on your own; or with anyone else other then family. When you move out there's certain things you'll notice about your first apartment that you might want to do with/without when you buy. Say for example you buy a condo downtown or a house near a traffic light; move in and then realize the noise from traffic keeps you up. It will cost you 6% of principal to fix your mistake.
> 
> If you were to buy a 20,000 car you would probably test drive it first. Why not do the same for a 200,000 house.
> 
> Good luck.


Same for prospective spouses!


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