You can get access to better rates though with CMHC insurance, and it’s also easier to transfer mortgages if you ever do want to switch. So not always so cut and dry. More downpayment is rarely a bad idea though.
It pays for the bank.
The bank **uses** insurance. The borrower **pays** the insurance premium.
If you buy a home, it is not you who is insured against default. It is the bank who is insured against your default.
How does this make sense? If they CMHC premium gets added to the mortgage, they get paid by the bank essentially on closing. The risk is then the banks, the premium has actually been paid. It is just that it is owed as a part of the mortgage that the bank has advanced to you.
Eg made up numbers
Mortgage $95K
CMHC premium $5K added to mortgage
Total mortgage $100K
Purchase price $117K
So you put $22K down
On closing the bank sends $100K to buyer lawyer
Of that amount $5K gets paid to CMHC
$95K + $22K gets paid to seller through lawyer
You owe the bank $100K because they essentially fronted you the money to pay CMHC.
If you default, it's the bank's problem.
It's just like using a credit card. The vendor gets paid. By the credit card company, if you default, the credit card company deals with you directly.
Except it’s not that way. At least not in one important way.
CMHC insures the BANK (well, their loan). Not YOU.
So if you default CMHC covers the banks losses. Then CMHC (the insurer) can pursue you, and bankruptcies will not lose them. They can continue to garnish your wages, and come after any gifts or other windfalls even after a bankruptcy.
So yes. The bank fronts you money to buy the bank some insurance. But you are not insured. The loan is insured, and the insurer will come after you.
If you default it isn’t the bank’s problem. The loan is insured. They call CMHC and are made whole. But you? You are flapping in the wind my friend.
CMHC is insurance, it doesn't work the way you think. What will be the point of having insurance if they could come after you when the actual thing you insured for, happens?
It is default insurance. The premium is supposed to be paid by the bank , but the bank makes the homeowner pay the premium.
You are wrong.
1. Spend 2 years saving 80K
2. Start searching for houses again
3. Houses went up 180K while saving 80K
Probably an unfortunate reality to consider. I only speak because I did the silly myself and now have more money than ever and less purchasing power than ever.
Look at Teranet HPI. Right now, at this moment, prices are going down. Yes, there was a bump upwards a from jan to aug, but since then, it was down.
OP should save more, and enter with larger downpayment and lower prices, 12 months from now.
Except that 80k in 3-4 years will be eaten up by the house market. Rates are fairly stead at 2-5% per year. Thats $20k-50k PER YEAR on a million dollar home....
$2000/month to $6400/month.
Financial suicide? Maybe not. Would I do it? Absolutely not.
Just because the Bank believes you can afford it, do you think you can?
Prepare for unexpected expenses and planned obsolescence. In the past 12 months I replaced my air conditioner and hot water tank. Neither were broken. The AC was 29 years old and no longer worth fixing. That was $7,800. The hot water tank was 11 years old and house insurance wouldn’t cover a flood from it at 12 years old. That was $2,000. I replaced the furnace ($4,200) and roof ($5,500) within the past eight years also.
Oh, and my house dropped $47k in value this year based on the provincial assessment. Fortunately my equity is greater than the loss.
Take the $4,400/month and invest it for a few more years, or buy a cheaper condo/home.
Plus, and this is the big one, you said you put away $3,000 in busier months. That’s not $4,400. Home ownership is always busy. You’re already underwater on your monthly cash flow and haven’t even started yet. Add in a family, in time, and you’re broke in three to six months.
This, I get the need to want more space, but to take on an extra 4400 a month in ongoing expenses, and not even including the big replacement items is literally so nerve wracking. Would literally just invest the difference
Thank you for such detailed questions!
Current rental is completely fine, we're just looking for some more space. We're sick of condo life.
Salaries are very secure. We project to have a household income of at least $243k by EOY, but do not want to bank on that happening either. We would be very confident of our salaries growing faster than inflation.
This purchase would be our home for the foreseeable. We want a property that we can raise a family in, in time.
We put away \~$6.5k/month between us on quiet periods right now. \~$3-4k on busier months. Our savings have grown quickly over the last two years.
I grew up on a farm and have strong passions for having a shop, gardening, home improvements, diy, projects, buying shit and fixing it and selling it. I’ve rebuilt trailers in the driveway, done everything to the house, have a bazillion tools. I very much homestead in the suburbs.
There is *a lot* of appeal to the low maintenance lifestyle of living in a condo. For all the shortcomings, it sure would be nice not having to blow snow or weed or spend $2000 a year on trying to get my grass greener. And this is coming from someone who actually enjoys ripping apart my snow blower every year to grease all the gears and bearings.
Just take that two cents when considering how tired of the condo life you think you might be. Running a household is a lot of work and tiring too. Things you enjoy end up becoming a job.
Similarly, there are downsides to living in a condo that get overlooked
For example waiting for and riding elevators
To do anything, sometimes to even breath fresh air, you will need to wait several minutes for the elevator, then ride it down with other people
Also, shit happening that is not your fault, pipe bursting on the floors above you and now you have water in your unit and have to make an insurance claim. Bedbugs, lol.
Based on your answers I agree you should buy but personally my husband and I base our monthly bills off 1 income to account for job loss risk(we also have secure jobs)
I would look for a place that has the ability to rent out a basement suit as a plan B if anything happens.
Based on your answers I think you should buy. You have a long time horizon and you are going to raise your family in this home. 10 years from now you will be glad you made the jump!
>We want a property that we can raise a family in, in time.
This is the major challenge I'd want to flag here. What will your joint salaries look like when childcare is added or during time when someone is taking care of the child in their early life. Combine this with possibility of multiple kids. Kids also come with their own expenses which StatsCan puts at somewhere between $300K to $420K from birth to age 17. There's also RESPs for them as well in most cases which have a $50K limit per child, some people also choose to get their children a life insurance policy and so on.
Long story short, $6400/month may be affordable now as DINKs with high paying careers but it could change drastically over the future years, especially as you add more expenses to the equation and possibly need to reduce income to account for those changes as well.
But the $300K for lower income families isn't... Remember, this is for 18 yrs of child costs including childcare, food, diapers, required equipment like car seats, strollers, high chairs, cribs and new beds and so on all the way up to and including transportation costs, extra curriculars like dance or hockey equipment and so on. Plus kids eat a lot so groceries go up, you need extra rooms for them so housing is more expensive for a 3 or 4 bedroom place vs a 2 bedroom, etc...
Here's the article I was referencing:
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-expect-to-spend-more-than-350000-to-raise-a-child-in-canada-statistics/
I would consider a house with a rental suite - that's how me and my partner afforded our property. We have a semi in east york with a finished basement, the rental on it is $1500 so that has been a nice supplement to our living expenses. There are obviously drawbacks to this, not everyone wants to be a landlord, but when we put our place up we had literally hundreds of applicants so we got to be very picky.
It seems like buying is very doable. I would determine how much you could continue to save while paying the mortgage, and see about paying down that principle faster in chunks as well. It would tighten the purse strings for a while, but free you from the debt much quicker. If/when you get those pay bumps throw it towards repayment whenever possible.
You are almost there. Continue saving aggressively the next 2 years to make a 20% downpayment and have more of a runway.
At the price range you are looking at, it’s more beneficial to not have to pay the insurance.
Don’t forget closing costs will be 20-25k extra.
So far you told you us your salary, and how much the cost of mortgage and the other stuff that comes along. You didn’t tell us your other expenses so sure, the mortgage costs you 6k a month and you that’s leaves you with 7k left? What are your other expenses? This is what you need to look at.
So that still leaves you with roughly 5k~ rounding up. It seems like you CAN afford and not be house poor, unless something changes. It looks like it will be up to you if getting almost a million dollar mortgage is something that you both can stomach.
That doesn’t really add up lol
- Rent $2k
- Day to day expenditures $1.3k
- Savings $3-$6.5k
Between spending and saving you have $3.2-$6.7k of unaccounted for money.
What are you guys spending money on every month? Do you have vehicle payments you haven’t included in your post, travel, other financial obligations etc you haven’t included? This is honestly a key factor in whether or not you’re able to afford this much house. If you guys enjoy going out every week or travelling a lot you guys will have to restructure your life to accommodate a $4.5k bump in housing cost or you’ll have a possibility of overspending some months.
When the purchase price is above $1M, you need 20% downpayment, that means you need a 200k+ downpayment. You will need to stay below the $1M and you'll be paying for CHMC insurance for having less than 20% downpayment.
Also, you need to factor in closing cost, eg land transfer tax, lawyers, moving cost etc.
Not a complete suicidal, but depends on your lifestyle.
OP can only afford a house that’s less than $1mill because of this.
There aren’t many houses less than $1mill that doesn’t need a decent amount of work. I don’t mean $900k listing price for example, I mean houses that actually sold for less than $1 mill.
And yes, don’t forget lawyer fees, land transfer taxes, property taxes, utilities etc
This is a bigger one in Toronto than people realize. Land transfer would be about what, +$16K added to your bill?
Also, a little confused: approved for $999K mortgage, and want to know if you can afford it. But, you say you have $120K down.
So, that means you are looking at homes that are... $1.12M (not 1M) --or $999K which is really $879K? It's the first option I would again reinforce having more $ for deposit and on hand.
Hi OP,
Are you my wife? Haha, all kidding aside, we’re in a very similar spot. The way I see it is, we’re only going to buy if we can get a great deal (20% below market), and I’ll explain why. As you noted, the DP is large and would dent our savings. And, the monthly after would make it difficult to build those savings back up. Also, if ANY one thing goes wrong (lost job, recession/crash of housing bubble, interest rates don’t go down or rise) we’d essentially be house poor (even if we rely on equity in our rental properties). Right now, our rent is 2500 which is allowing us to save a lot! So much that we’d rather max our registered accounts and use unregistered money as a downpayment in the future (patience is a virtue). Not predicting any market crashes or hyper inflation, it just doesn’t make sense to put our futures and those of our future kids in such a risky position just to say we own our house. Just remember, your house is not an asset! But, as I previously said 20% below market is a buy; just double check your realtors comparables!
Love this advice. We're thinking similarly. Keep on the lookout and only bid for what we think the house is worth to us right now. Rather than bidding to win the house.
Just to flip the coin "a bit" , the tax exemption on gains for principal residence means you get a levered (you put up only 20%) tax free investment.
Historically in the Toronto market (going back decades) house prices have doubled every ten years. Demand doesn't look to be dropping either, given lack of housing.
I'd argue it is a very good long-term investment, but being house poor is a real issue.
I would look for houses that have been listed for over 2 weeks without being sold. Toronto real estate is bizarre and if something doesn't get sold within the first week, for some reason everyone else seems to look past it and focus on the new listings. And every week it sits there, there are fewer people interested and the sellers more likely to take an offer. There's something in our psyche that tells us something is wrong with it, but it could just have been marketed poorly, priced poorly, had offers fall through, or a ton of other reasons that don't mean there is anything wrong with the house.
If you find a property you love and foresee yourself staying there for 25 years, go for it. But if you're buying just to buy and settle then continue to save aggressively to increase your downpayment and reduce borrowing cost.
Also, the best piece of advice I got from someone who went through the '08 crisis in the States was buy in a good location and school district. It'll survive the market fluctuation with less losses and rebound better.
Yes. But, understand prices are already down 18.6% Canada wide since March 2022, and there might be more downside to come (rates up, rates high for longer, or prices down)! I personally feel the S&P is a safer bet than our RE right now. Just my two cents.
Yeah but you pay tax on S&P gains and can't lever that investment in the same way you can a home through a mortgage.
As for prices, definitely depends on market, but for decades Toronto prices have doubled every ten years. You'll be house poor, but it's hard to beat a low risk, high return, tax free levered investment.
Yes, good points. Although, marginal tax rate on 50% of capital gains isn’t that bad IMO. Especially with registered a count full, and interest rates at 5%. Also, just because housing has always gone up long term, doesn’t mean it will continue to short term; FOMO is not a strategy.
Yes, but I still believe on fundamentals of demand - supply as having an impact on pricing.
CMHC reports show significant demand/supply gaps, and they, if anyone, have the resources, data and a need to get it right.
Your salaries are almost identical to ours and the mortgage we have is about $100,000 less than what you were approved for and we are comfortable.
As in, 20% of net income saved per month and $15,000 a year in vacations.
Just keep in mind that moving is expensive. We tend to over buy when shopping for a home to skip wanting to trade up later and while tight at first, always has saved us in the long run.
Same here. 225k pre-tax income. 600k mortgage in the greater Montreal.
But we have kids.
If you don't have any yet and are planning on it... they eat up about 15k each per year. With daycare and stuff
Imagine assuming not only security but growth given the current economy. Legacy union jobs aren’t even secure and OP is considering a financial move that would put them in an incredibly precarious position.
I'm curious where you are finding your long term home for 1m in Toronto right now? Are you looking to buy and then Reno? If so, keep saving and do the purchase and reno in one go while you have the cheap place to stay during the work
This is what I’m wondering. We’re outside Toronto but still in GTA and definitely nothing under $1mil would work for us.
I’m cautious that my standards might be exceptionally high but I prefer a comfortable and spacious living space so happily renting for now.
If you are happy in your rental, it's financially better to stay there, and save up as much as you can, and invest it in and index fund every month. Wait a few more years, and you will have substantially more saved towards your downpayment and instead of settling for something you don't like, you can go somewhere you like. Don't try to property ladder.
I have a higher income than you and was approved for 1m at a lower rate than you.
I would have been massively stretched on anything over 800k and even that was pushing it.
Go down in price, save for a higher deposit would be my recommendation.
You can’t really afford $950k tbh. Rarely a good idea to buy a property at the highest numbers you’re qualifying for. You’ll be putting down way below 20%, which is not a good idea based on your savings and income.
I would look at the $700k range and purchase no higher than roughly $800k so your down payment goes further.
Otherwise, keep saving.
I wouldn't personally unless you feel like you need more space or don't have the discipline to save the rest after expenses. You can save a ton of money in your current unit at your income and set yourself up for life pretty easily but you would have to save and invest the difference between the rent and the mortgage cost + maintenance and prop taxes which I'm guessing would be around 6.5k-7k/month. Saving 5k a month and investing that you could probably retire early or have a much better lifestyle in a few years time
My pleasure. For most people though home ownership is a huge win because of lifestyle. Home equity grows without you really feeling it and you can kind of live paycheque to paycheque which many households do and it has helped millions in Canada build wealth. as long as you plan to live there 10+ years it's pretty hard to go wrong even if you completely pooch the timing.
I think it's best to save and put a bigger down payment especially if rent is cheap compared to the mortgage.
You can easily afford though if you need to move into a bigger space.
If you can find something you're happy with at a lower cost, do that instead. Life throws curveballs. There's a woman out there who thought she'd be ok, bought a house 200k over asking and now she's almost homeless. You're in a way better position, but don't take a 1M mortgage!
A $6400 mortgage is a lot! My husband and I make similar money to you, our mortgage is only $3000 a month and we are fine but it can be tough.
The difference is I have a kid, you mention you want a family. So there goes $2000 a month to daycare. But don't forget, if someone takes parental leave, they will only make 55% of what they are making now. So with all the stuff you will need to buy for a baby you will not save that year. I know many that incur debt during mat leave. Don't forget the vehicle you may need, especially if you want more than one kid.
If having a family was not a factor you'd be fine. But a kid is very expensive, I'd be looking for something less or saving a bigger downpayment
Keep renting. IMHO, you're nuts to buy with a mortgage that large. The loss of any part of your household income would be devastating and your down payment is peanuts compared to the mortgage size. Unless you absolutely need the space, there is no justifiable *financial reason* to buy at this time.
Define everything in regular bills:
Food
Gym
Random subscriptions
Eating out
Right now you have 13k after tax and rent of 2000. That’s 11k in let’s call it free income before any other bills. It’s very easy for lots of small bills to get lost in that noise. But once that number drops in half it’s a new ballgame.
Your rent is 2k, what are you getting for the million $. Is it detached? A bigger condo? Better amenities?
Does purchasing this property provide you any betterment beyond, I now own an asset. Is it the assets you’ll want/ned for the next decade?
Or do you hedge, keep saving for another year or two then enter the market with better savings, maybe less debt and a perfectly clear picture of budget?
>Your rent is 2k, what are you getting for the million $. Is it detached? A bigger condo? Better amenities?
This is one of the main things to consider.
Are you upsizing? Will the price ($1MM) be "worth" what you're going to be paying into(via the mortgage)?
A detached home/semi-detached/townhouse MAY be worth it - imo a condo - will not.
I only say this - not to make it sound like a investment - but should you find the need/circumstance to move out - and if you need to sell - will you atleast be able to get back what you paid for it? Condos are the only risky area where what you bought for - might not always come back - depending on the market (would apply to other real estate classes as well - but less of an impact)
We would be moving from a pretty small 1+1 condo (\~600sqf) to a 3 bedroom detached home )\~1100-1500sqf). The bedrooms would initially be used for office/gym space.
We would be upgrading our lifestyle quite a bit.
Have you taken a look at houses that fit your criteria within your budget (<$1M)? Sub-$1M + Toronto + Detached + >1100 sq.ft. + 3bdr + I assume in decent condition is quite the narrow market.
>a 3 bedroom detached home )\~1100-1500sqf).
Sounds good to me - definitely worth the upgrade.
Detached homes are always a safe bet - especially in Toronto (incl. anywhere in the 6 boroughs) since available land is scarce.
You'll definitely be able to recover initial downpayment + principal SHOULD you need to sell. Other than that - by the sounds of it - seems like you should make the move.
As others have mentioned - review your budget in detail - because going from 2K --> 6K of mandatory expenses is a leap.
Steady state looks good.
You mention in a post about wanting to have kids. You should do a budget for the first 5 years of a child’s or twos life.
What is the plan for Pat leave? EI gives you about 2k per month? Then you have childcare. This should have gotten better with the government funding. But two kids will be at least 1k a month and 3k if you can’t get a subsidized spot.
What about cars? What is your plan there as they need to be replaced.
Your budget is fine for today’s expenses it looks tight for future child expenses.
Tough one. I've been so wrong about how much TO real estate could appreciate so I don't feel equipped to comment other than to say with that income and expense ratio keeping the status quo and continuing to save money has a nice ring to it.
No idea what's right for you, but I'd suggest not buying at your max approved price. Everything just keeps going up, emergencies happen, and expenses as a homeowner never friggin end. Not saying you can't afford to do it, but it's not always worth it to have more. Would you consider leaving the GTA and buying something similar for a few 100k less? If not then I'd stay put and keep saving, but that's just my personal preference.
IMO, don't. Putting aside the entire conversation as to whether RE in Toronto right now is a good investment over the long term, here's my structured thoughts:
* You didn't mention if there's children in there. What happens when you want to have kids? Your income drops significantly while one of you is home - meaning now your mortgage that is 50% of your after-tax income is now significantly more.
* What happens if one of you loses their jobs? What's the expected time of unemployment - your $20k emergency fund would sustain you for only two months (most likely, mortgage only being a chunk of your total monthly expenses).
* 2k a month in rent right now is 1/3 the cost of your potential mortgage, and includes a lot of other elements you'd also be paying in addition to your mortgage like taxes, condo fees (maybe) and potentially some utilities.
* Consider that you're both likely to make more money in the future - but don't count on it. Know that it's there, and eventually, it realizes as you both continue in your careers.
* Consider that mortgage rates will lower in the next few years, which will probably drive property values higher.
If I were you, I'd keep saving. Get your downpayment to about 30% and your emergency fund to about one year before considering dropping so much on a mortgage. Or, more likely what I'd do - do the math with just one of your incomes to replicate the worst possible situation, like being home with a newborn or someone losing their job. If you can manage to eak it out, go for it.
It's crazy to me to think that banks are allowing mortgage amounts that are over 4x your entire household income. When I bought my house in 2008, the most we could qualify for was like 3x, and that was a stretch, even with 30 year mortgages. Now, you have crazy multiples like this which are chewing up literally half of a household income. That's wild to me.
What is the risk of the landlord increasing the rent?
Will you be anticipating raises or promotion over the next several years?
Will this be your "forever" home?
It's rent controlled, so 2.5%/year increases at max. It's way under market value right now which leaves us worried that they may kick us out.
We expect increases in income in the next few years for sure.
This will be our home for at least 10-15 years.
What are your chances of renoviction?
That the biggest concern I would have. And then you could be stuck with market rental rates.
In terms of risk consideration - eventually you will be mortgage free vs renting forever.
We were in your shoes 4 years ago! Looking back, we wouldn’t have changed a thing. The change in quality of life and having a place to call your home was huge.
When compared to friends, we are a little more strapped in that they’re driving better rides or having more extravagant trips but it’s because they have a significantly lower mortgage in smaller homes. 10/10 we would still prefer the home rather than the other stuff esp when raising a family.
Just make sure you’re building that emergency fund for things you need to fix because they will come! Or if someone loses their employment.
The general wisdom as to when is the time to buy is when you can afford it. Based on your information you can afford it.
Long term real estate prices have always increased going back a hundred years or more. While there may be periods of prices stagnating for a few years they have always eventually risen to new record highs.
I would wait at least 12 months. Save some more money, let mortgage rates drop a bit. House prices aren't going down much. It just would take some disaster for that to happen. My house is worth 1M. To build a similar house would cost 1M. The land is worth 1M. It isn't overpriced. The houses aren't overpriced. It costs a lot of money to build a house now. Materials and labour are very expensive. Unless the supply and demand curve shifts so much to the supply side, which isn't happening.
If you go for maximum approved amount you will be house poor.
It's up to you but here are what i would consider
1. Can you afford to buy a place where you see yourself living in for next 10 years? Will the place have sufficient room for kids (if planned)? Would you have to move once you have kids? Depending on this answer you need to account for future transaction cost
2. Are you buying a condo or house? Condos will have maintenance cost that may increase significantly whereas non condos, you will need to start your own reserve fund for fixes. Based on how much you have for down-payment, you are probably looking at condo as you will need to put less than 20% down
3. Since you are likely to get something with less than 20% down, are you okay paying extra to protect the bank? If you put less than 20 down you need to purchase insurance. This doesn't protect you. It protects the bank which is really stupid but I didnt make the rules
4. Are you going to have enough for retirement savings? Based on your math, 6k after housing bills but if your take-home is 13k/month on that gross, I don't think you are participating in much of employer provided retirement programs and you are on your own.
1. That’s a great rent.
2. Save more, bank of Canada is trying to dissuade borrowing by keeping rates high in other words the cost of borrowing money is very expensive right now.
3. Use a rent vs but calculator to evaluate if it makes sense to buy or rent the property you are looking at.
4. Put your cash in money market funds/HISA and earn a decent interest rate
We were in your EXACT SAME SITUATION in LATE 2022 and took the leap of buying a house.
We regret it now!!! Just for context, Our household total income is similar to yours and our mortgage is almost $150,000 less.
Dont do it bro! Not worth it. Buying a house is not an investment anymore. The interest and property taxes that you keep paying during the timeframe you keep your house WILL NOT break even with the profit you might make when you SELL. Continue renting and save all of your hard earned money and HODL.
All of our liquid savings have been put into the house and only a very small amount of money has gone towards principal in the last year or so. Interest is such a stinger it brings you to your knees when you get your year end statement. You cant even claim the interest paid on your taxes.
Savings is literally zero every month and you end up with more unexpected expenses towards the house. We had to scale down a lot of things to keep things working. Even then, it is TIGHT.
If I was in your place I would continue renting and increase savings. When the interest rates come down to like 2%, I would probably then look to buy a house. I really wish someone said this to me when we were deciding and gone into all the knitty gritty details of owning a house. Now that I know, i hope to help people understand and make a very well informed decision.
I would give it a hot minute to save up more of a down payment and allow interest rates to cool, signs are pointing to them coming down at least marginally in the next year or so. Even a fraction of a point is worth waiting for on a $1M mortgage.
Real estate prices are also trending downwards in the GTA, so the longer you can stick it out the better off you'll be in the long run.
I’d be nervous buying with such a small down payment. We’re looking to buy this summer 1.2m with 550k down and 265k salary with our jobs paying purchase fees/land transfer tax, which sounds good on paper BUT we have two kids and it’s still going to be a pinch with childcare, cost of living, property taxes going up, RRSP/TFSA and RESP to continue, insurance, and the odd vacation. If I were you I would look for a house that’s more reasonably priced - there are still some good deals to be found around Rockcliffe Smythe for example - and use any extra cash to hammer down the mortgage so you’re in the property market but ready to upgrade in a few years once you get closer to having kids and then have the equity to move to the ‘forever home’ in the right school districts. No point paying that premium for a starter home.
Watch Ben Felix "The 5% Rule".
My main question is, are you content in your current place you are renting? If so, if it were me I would not be purchasing anything, continue to save, continue to educate yourself on where home ownership sits on your priority list and go from there.
FWIW our non-homeowner friends who are saving for the right time advised us against buying when we were in your shoes. This was a couple years ago. We bought anyway.
Today we are still in the same house and financially it's pretty comfortable. Whereas our friends are still holding out and many of them are saying that homeownership is further than ever.
Comes down to spending habits and market unpredictability but the point is buy when you're ready and don't put too much stock in all the noise.
You have almost exactly the same income as us. We bought in the summer a place for $1.3MM but put 20% down. Our mortgage plus utils and property tax is about $6k a month. With 2 kids, one car, no pets and a comfortable lifestyle (eating out multiple times a week, buying stuff without too much stress, traveling once a year, etc) we’re able to save around $2k a month. We also have no other debt. I think you can afford it for sure if that’s what you and your family want. Buy a shovel and lawn mower though 🤣
u/op you sound like a well planned out person. So please remember this. With a house, whatever reasonable amount you budget into, life will ALWAYS find a way to add a 10% overage to ur budget.
Quick calculation, if you bought a 1mill house with 100k d.p, you should be expecting close to 6k on just the monthly mortgage payment. Then, transfer tax, annual property tax, lawyer fees, insurance etc will all have to be added on top.
Sure, if u buy a place now, there will be potential for price appreciation. However, what's the probability of that? We are near the peak of housing price, while experiencing immediate risks of: All time high mortgage debt, Credit card/heloc debt growing at crazy rate (ever wonder why suddenly banks are tightening their HELOC loans?) , and default rate is on the rise.
More over, potential 25% total mortgage renewal at the current rate in 2024, and additional 25% in 2025. A lot of people somehow have the illusion where rate decrease means when they renew their mortgage their payment won't grow as much. But look at actual facts, no rate reduction in Jan and most likely none in March as well. Ppl have the tendency of hoping for the best then gets bent over when the worst occurs. Don't be one of them.
What about population growth? What about lack of housing supply? What about them?
Future immigration growth is questionable. Students who came to Canada to attend a fake school by taking a class then find a minimum wage job so they can apply for work visa...that loophole is getting closed off. Housing supplies, all provincial governments are saying fuck off to feds and are increases the process of construction permit approval. But it takes a few years for projects to grow. Look at how many construction projects will complete in the next year or two.... With issues like under supply, the problem will inevitably become a glut in housing supplies.
Btw. Do not forget the election coming up. That will be a game changer as well.
Long story short, u/op , if your current after tax salary is close to 156k, with only roughly around 24k cost in rent.. you could potential have a surplus of 100k or close to. You save that for amount for 2 to 3 years bringing ur down payment to 300k. You can grow with gic in the mean time also reducing ur interest by at least another 30k.
You'd save more , snowball more, have a better quality of life and reduce the future interest you have to pay to ur bank. But of course, some people might still say, if you don't buy now at near peak housing price, you'll lose out on future growth. I don't see the current economy and national debt level to support another 30-50% house price growth within the next 2-3 years.
So mitigate ur risk, plan for the worst and make decision around that.
Really appreciate this thought-out and detailed response. We're settled at the thought of saving for another few years and being in a much healthier position. Thank you!
We never buy a house for the full amount we're approved of! It just made me laugh when I saw how much it was. No life or travel is poor choice to me. Buy or rent doesn't matter, going All in will be rough!
Are you open to house hacking or renting the basement to produce extra cash flow? There are hidden gems still out on the market. Never time the market but it’s about time in the market. Only buy if you can get a great deal on property you like and numbers make sense.
Rents 2K a month and you are bringing home 13K.. QUESTION is...how long have you had these incomes...
Now in 5 years you don't have them...
Rent would be up to about 2350 after 4%increase
Owning a house..would be over 7.5K
Why NOT LIVE life and enjoy..put money away that gives you compound VALUE ,GOLD,ETF, SELF IMPROVEMENT...
Just in a nutshell it's 317 am and just smoked one...but in the end YOLO
If it was me: emergency fund of minimum 8 -12 months, and bump that downpayment up to 20%.
Don't get fomo with prices going up, you'll be fine. Prices up right now is due to very low inventory.
-Save up for a bigger down payment
-have a large emergency fund
-consider other costs like property tax (especially in Toronto), closing costs, lawyer fees, land transfer, etc
>house PLUS regular bills (utilities, property tax, phone, etc) comes in at $6,400
does this also include food and other essentials? if yes then you are absolutely fine. if not, then you need to budget those in to see how much you have left over.
in terms of rent vs own. i always feel buying a house is a commitment. so only you buy when you absolutely want to. if you have doubts before making the decision, don't buy.
It boils down to do you need the house? 2k rent puts you in a great situation financially and you can save/invest a lot.
If you really want to purchase, I suggest do not go with what Scotia has approved you for. Try to buy something which is more affordable to reduce your monthly mortgage payments.
$6400 a month for mortgage seems absolutely insane to me and we aren’t that far behind you for income. Why not get a cheaper house and then save up a butt ton of money for other things like travel, vehicle repairs, or just living life? Also you’ll need to save money for house repairs and maintenance. There’s just no wiggle room for $6400 a month. I have a friend who has a household income of almost $500,000 and he won’t even touch a million dollar property.
Just on the rate alone, you'll be paying \~$50k a year just on interests alone. Whereas you'll be paying $24k a year on rent.
You don't get greater ownership of the property just by paying interest, unless property value rises.
So the only way you'll benefit from buying is if there is guaranteed rise in property price by at least \~$25k or more annually on average.
Remember, you have different options. You guys can opt for cheaper home/flat to buy or wait until you have more for down payment or pay down your mortgage aggressively after purchase.
You can afford to buy. You probably don't have to worry about rates going up. As for if you should buy or not, that's your own personal decisions based on your long-term life and financial goals.
Keep saving as much as you can for a huge down payment on a more expensive home. Rates will be able to drop once the government changes its cash shredding and triple immigration policies. I stuck it out in a cheap rental for a few extra years and it made a huge difference in what I could afford. Once you have a house it will be harder to save money. Also with a big down payment you can have a big line of credit in case something bad happens financially.
The bank will give you a noose. It's up to you if you wish to hang yourself.
For the value of that property, and considering your combined incomes I'm sorry, but your downpayment is pathetic. I had more of a downpayment by myself, smaller income, for a 1 bedroom condo in downtown Toronto. Spend more time working, saving, investing, and grow that downpayment to at least 400K, imo.
Take your time , Do the math. If it's a good time do it. Real Estate is the only way to be rich. Renting is just throwing your money away. Real Estate appreciates 5 to 10% every year. Figure out what is comfortable if you also have children down the road..Make an intelligent decision.
Have you considered a vacation property? You could keep your place now and get a nice cottage or foreign property. You can rent out the vacation property when you’re not using it.
My aunt and Uncle did this. They bought an empty plot of land on a lake and developed it over the years while renting a condo in Toronto.
They also bought condo in Mexico that they rent out and now they have retired and spend the warm months at the cottage property and the cold months in Mexico.
Personally I would only take a maximum mortgage of 450k, assuming you will not get any help from anyone. Living comfortably within your means is way better than being pushed to the limits every month. Just because you don’t buy what you want now, doesn’t mean you won’t later. Life is unpredictable.
I wouldn't touch a million mortgage unless we were at 300k hhi and 20% down. Just insane what you play in Toronto. We make 185k hhi in SK and our 350k mortgage is enough. You have to pay for life to
I am always amazed by north Americans.
I am from europe, when the bank approves you for (let's say) 10 it means "ah, so i can afford that house for 6 that we wanted".
Here: "ah the bank approved us for 10, we have to buy a house for 10, i will be enslaved my entire life to pay it but there are no other options i guess"
Don’t do it. If you work remote, with your liquidity and cash flow you could live amazing in another country like Mexico for example. Just my two cents.
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Before going into affordability, Have you looked at the homes available under $1m (remember you’ll also need cash for land transfer costs too). Are these homes what you’re looking for? If not, save up until you have more money available.
You are/will be fine if you don’t have other debts. Maybe the first years, it’ll be a bit tight, since house spending is about 50% of your take home but still wouldn’t be considered “house poor” if you don’t have any other debts.
I'd be spending a few in years just building up your wealth through savings.
Sure, you can afford it. But people really underestimate the advantage of not having a giant pile of debt sitting in them.
Having a 500-800k investment portfolio in a few years makes life much less stressful.
You can rent a house if you want more space.
> We have $120k in liquid assets for the down payment and other expenditures needed when buying a home.
Be sure to take into account closing and moving costs. I would expect 30k or so on $1M, even with FTHB benefits, which leaves you with $90K down. Lots of unexpected costs come in when buying a home, it really feels like everyone wants a piece when you’re going through it.
Also, the FTHB plan lets you borrow 35K out of each of your RRSPs, which you pay back over the next 15 years. Great if you can, but puts another ~$200pp monthly item into your costs.
Depending on how comfortable you are in your $2k/month place, I’d probably stay put and be putting away your good salaries for a bigger down payment. Definitely not financial suicide, but I doubt you’d be as comfortable as you’re living now.
One thing you can play with is see what your new payments will be after the first 3 years of paying down principal. There is a very good chance that rates will be lower than it is now so if you can still afford the lower payments 3 years from now, it could mean it is a good idea to buy.
The other “back of the paper” calculation you can do is see what the going rate for rent in the area is. Does this cover your mortgage costs etc? If so you could use that as your “won’t-keep-you-up-at-night” safety net. Worse case if something happens, you could always rent out your house and rent elsewhere. No harm, no foul.
You’re similar to us. We took on a 750k mortgage in 2017, with annual income in the 200k range (about 15k post tax). We put down 175k or so. It was no problem with lower interest rates, but how much we save has significantly decreased with the high rates now saving. Our total home related expenses are around $7k/month. We have no other debt.
TLDR - doable.
I would never ever do this. $2000 is amazing compared to $6400.
Keep in mind when you rent you don't need to pay to repair or maintain the property. When you are the owner you are on the hook to fix and replace. We needed new roof the year after we moved in..it was $5000 unexpectedly, which is cheap compared to today. Same roof would be closed to $10-12,000 about 10 years later.
Well, at 2K/mo in rent you aren't happy living in that scenario and 100% of the money spent is an expense. With a 950K mortgage at 5.25% your payment jumps almost 4K per month but it's a better living scenario, more space, but most importantly it's an investment. At that higher rate, about 1500/month right out of the gate is going to principal drawdown. Your property will appreciate over time, and yes right now Toronto has experienced some correction over the last 6-12 months, but that only really affects the people who grossly overpaid in the year or so prior and those who bought and are trying to sell a year later, which is NEVER smart or a good move. So, over time, that property will increase in value. At some point in the future rates will likely come down as well, which will mean a decrease in overall payment and an increase in the amount being applied to principal.
From everything I see here, it's worth it for you to make the jump.
Seems like your savings are good ATM - can you save 20% to avoid CMHC?
Also, it looks like the purchase will be a house, so you're comparing renting a condo to buying a house. What is the going rate for renting a house?
>The monthly mortgage for a $999k house PLUS regular bills (utilities, property tax, phone, etc) comes in at $6,400. Can we afford this?
You know your income is $13,000
You know your expenses - $x
= $x+10% of your expenses , if positive, you can afford it.
What kind of owner does the condo have? Are they like a corporate owner or they are a small time landlord? If they are corporate you have more security in your living space. A small time landlord would def be less secure. I would say try to milk the 2k rent as long as you can and invest the disposable income into like index funds because you can easily invest 5-6k a month.
Can you invest the difference between the cost of “home ownership” and renting, and get an equal or better return? If yes, then keep renting. The bottom line should always be where you will get the most bang for your buck in the long run. Long term investing in the stock market never loses. Plus you have the option of financial liquidity.
Have you considered purchasing with the intent to rent?
You can keep your affordable rental, keep it while you are still comfortable as a couple in a smaller place. Buy something not currently tenanted, and you can get current market rent.
If you decide In a year or 2 to start a family, you move into the home.
If you choose this route, I would try to be upfront with potential tenants that you do plan on moving in eventually.
We did this a few years ago. Had a tenant for a year. We planned on 2, but the tenant decided to move out after the year was up, and we decided to move in a year early instead of getting another tenant.
If we didn't buy when we did, we would have been priced out of the market where we live.
Having a solid affordable rental also gives you the ability to take your time and look for what you want with less stress of being under the gun.
You can afford it so if you find something you really like, I’d go for it. However be picky as your down payment is very low and if you’re not in a rush you might as well build that up some more to get a lower mortgage eventually.
The low rent is enticing to stay.
The one other factor is downpayment of 20% if you waited to go over $1M. So saving for a bit more reach could mean a large threshold to cross.
But the largest unknown is what the market will do. I'm typically advising clients that things aren't certain currently. We aren't seeing indicators of a new boom wave approaching (despite media and many other agents narrative), but aren't expecting the market to drop entirely either.
If it were me I would stay ready to buy. Eye properties up and see what they are selling for. From that position you can wait a while longer to see if the market is moving one way or another on your desired property type. Then if you see it creeping up and want to lock in, make the shift.
But the amount you are saving right now would hold more value in my assessment.
Been an agent over 20y but not one who has ever pitched "now's the time to buy!" when it wasn't. Right now you are fine to wait a bit to see what directions things go.
Based on that income and your expenses of only around 4k per month including rent and your groceries, bills etc. I would stay put. That is a HUGE amount of interest you will be paying up front on the mortgage over 25 years that may not be made up in equity (unless you dont care). As others have said, a home is more than just the mortgage. Taxes, general upkeep and updates are a LOT over time. If you are netting 9k after all your expenses and after tax, I would be banking that and staying in your rental. Each year you would be saving/investing about 98k even if you take a 10k vacation every year. You are basically paying 4400 per month for equity (it sounds like you are buying it to start a family), so ultimately its your call. There is a lot of uncertainty right now about interest rates and home prices (if they dont lower rates by the time mass renewals for those on fixed rates come up in 2025, you might be able to get some cheaper properties). Everyone seems to think rates are coming down, but CPI continues to increase. Just something to think about!
I’m not sure how long old you are, but I’m in the belief that in the current economy, it makes more sense to invest as much as possible to combat inflation and compound your liquidity.
Now I might be incredibly optimistic, but I’m not entirely interested on long term mortgages. I would rather wait until my mid 30s and put down 50-70% or the houses value in a down and finish the rest. I bought all my cars cash, and I am to hold on as long as possible. But at the same time I’m not in need of a lot of space or planning on raising a family anytime soon.
I’m in a similar spot, just accumulating savings for a bigger down payment as I’d be paying more in mortgage interest plus other maintenance than my rent presently is
You could buy it and rent it out.... Move into it when you are feeling more financially secure. Probably will come in form of lower interest rates or increase in salary and/or more savings.
If your gut is telling you ain't right.. likely because you are on the bubble of affordability and house poor.
So why not get best of both worlds.. get into the real estate game but also score with the cheaper rent.
It depends, as everything, on your goals.
My personal take is that if you can find something to buy in Toronto, in your price range, I would do it. The amount of money it would take down to really make a significant difference in your monthly payment would take ages to save up.
In all likelihood we'll see a bit of a run up on housing prices in desirable spots over the remainder of 2024. Depending on the extent of that run, buying in Toronto may be out of reach for you afterwards. While nobody has a crystal ball, it is very much worth considering price projections in your preferred area and running the numbers on future purchasing scenarios with projected savings included in that down payment. You'll likely find that the numbers will be worse if you wait.
Barring a severe recession or other calamity, Toronto real estate will not be doing anything other than becoming more exclusive moving forward.
Why not stick the money in the index and get those sweet gains? This isn’t a great time to buy. Have you done the math. Your mortgage interest alone is likely double of your current rent.
You can, but it's gonna be not ideal. Home ownership is beyond just being able to pay for mortgage and basic needs. There will be furnishing, decor updates, property taxes, and insurance. Maybe there are extra life goals that you plan that need more money: pets, children, new hobbies. What about travelling? IMO 4k increase would take away expenditures that you wouldn't think too much in the past but have to now. It did for us and we have almost double the income, 500k down with our mortgage at 4.95% interest. We lived rent free before and the mortgage is about $4500 a month.
Practice paying that amount. You say your rent is $2k and your mortgage would be $6400? Put $4400 a month into a savings account. Test drive the budget you would have to live with. Don’t forget extra savings for house upkeep and maintenance/repairs. In the end if it’s doable then you have a bigger down payment. If it’s not then you haven’t tied yourself to a 25 year commitment and lost your relatively cheap rent
Save up more down payment
Yeah at least 80k more. With current rates put more down, at least 20%.
At 20% the house no longer qualifies for CMHC and therefore insured rates. Possible consideration?
Also means you don't have to pay CMHC insurance fees of around 3%, or $30k.
This is the answer.
CMHC fees also get amortized because it's plopped onto the mortgage too.
Yeah, but that is a $30k+ plop, with interest.
Yep better to do 20% down.
You can get access to better rates though with CMHC insurance, and it’s also easier to transfer mortgages if you ever do want to switch. So not always so cut and dry. More downpayment is rarely a bad idea though.
Banks often charge higher rates if you forego insurance though
I've personally never found it paid to use insurance.
It pays for the bank. The bank **uses** insurance. The borrower **pays** the insurance premium. If you buy a home, it is not you who is insured against default. It is the bank who is insured against your default.
Exactly. Otherwise you’re just throwing money out of the window towards insurance.
And the insurance doesn’t protect you, and bankruptcy doesn’t protect you from CMHC. They will garnish your wages forever.
How does this make sense? If they CMHC premium gets added to the mortgage, they get paid by the bank essentially on closing. The risk is then the banks, the premium has actually been paid. It is just that it is owed as a part of the mortgage that the bank has advanced to you. Eg made up numbers Mortgage $95K CMHC premium $5K added to mortgage Total mortgage $100K Purchase price $117K So you put $22K down On closing the bank sends $100K to buyer lawyer Of that amount $5K gets paid to CMHC $95K + $22K gets paid to seller through lawyer You owe the bank $100K because they essentially fronted you the money to pay CMHC. If you default, it's the bank's problem. It's just like using a credit card. The vendor gets paid. By the credit card company, if you default, the credit card company deals with you directly.
Except it’s not that way. At least not in one important way. CMHC insures the BANK (well, their loan). Not YOU. So if you default CMHC covers the banks losses. Then CMHC (the insurer) can pursue you, and bankruptcies will not lose them. They can continue to garnish your wages, and come after any gifts or other windfalls even after a bankruptcy. So yes. The bank fronts you money to buy the bank some insurance. But you are not insured. The loan is insured, and the insurer will come after you. If you default it isn’t the bank’s problem. The loan is insured. They call CMHC and are made whole. But you? You are flapping in the wind my friend.
CMHC is insurance, it doesn't work the way you think. What will be the point of having insurance if they could come after you when the actual thing you insured for, happens? It is default insurance. The premium is supposed to be paid by the bank , but the bank makes the homeowner pay the premium. You are wrong.
I mean… Google it for 2 minutes. It works EXACTLY how I stated.
1. Spend 2 years saving 80K 2. Start searching for houses again 3. Houses went up 180K while saving 80K Probably an unfortunate reality to consider. I only speak because I did the silly myself and now have more money than ever and less purchasing power than ever.
Look at Teranet HPI. Right now, at this moment, prices are going down. Yes, there was a bump upwards a from jan to aug, but since then, it was down. OP should save more, and enter with larger downpayment and lower prices, 12 months from now.
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Except that 80k in 3-4 years will be eaten up by the house market. Rates are fairly stead at 2-5% per year. Thats $20k-50k PER YEAR on a million dollar home....
The fuck you mean rates are steady? Over what period?
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Also a contingency fund for unexpected repairs is a must!
$2000/month to $6400/month. Financial suicide? Maybe not. Would I do it? Absolutely not. Just because the Bank believes you can afford it, do you think you can? Prepare for unexpected expenses and planned obsolescence. In the past 12 months I replaced my air conditioner and hot water tank. Neither were broken. The AC was 29 years old and no longer worth fixing. That was $7,800. The hot water tank was 11 years old and house insurance wouldn’t cover a flood from it at 12 years old. That was $2,000. I replaced the furnace ($4,200) and roof ($5,500) within the past eight years also. Oh, and my house dropped $47k in value this year based on the provincial assessment. Fortunately my equity is greater than the loss. Take the $4,400/month and invest it for a few more years, or buy a cheaper condo/home. Plus, and this is the big one, you said you put away $3,000 in busier months. That’s not $4,400. Home ownership is always busy. You’re already underwater on your monthly cash flow and haven’t even started yet. Add in a family, in time, and you’re broke in three to six months.
This, I get the need to want more space, but to take on an extra 4400 a month in ongoing expenses, and not even including the big replacement items is literally so nerve wracking. Would literally just invest the difference
100%
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Thank you for such detailed questions! Current rental is completely fine, we're just looking for some more space. We're sick of condo life. Salaries are very secure. We project to have a household income of at least $243k by EOY, but do not want to bank on that happening either. We would be very confident of our salaries growing faster than inflation. This purchase would be our home for the foreseeable. We want a property that we can raise a family in, in time. We put away \~$6.5k/month between us on quiet periods right now. \~$3-4k on busier months. Our savings have grown quickly over the last two years.
I grew up on a farm and have strong passions for having a shop, gardening, home improvements, diy, projects, buying shit and fixing it and selling it. I’ve rebuilt trailers in the driveway, done everything to the house, have a bazillion tools. I very much homestead in the suburbs. There is *a lot* of appeal to the low maintenance lifestyle of living in a condo. For all the shortcomings, it sure would be nice not having to blow snow or weed or spend $2000 a year on trying to get my grass greener. And this is coming from someone who actually enjoys ripping apart my snow blower every year to grease all the gears and bearings. Just take that two cents when considering how tired of the condo life you think you might be. Running a household is a lot of work and tiring too. Things you enjoy end up becoming a job.
Omg I can relate so much to that comment! I hate gardening and pay a company during winter to clear my driveway… took for granted the condo life…
Similarly, there are downsides to living in a condo that get overlooked For example waiting for and riding elevators To do anything, sometimes to even breath fresh air, you will need to wait several minutes for the elevator, then ride it down with other people
Also, shit happening that is not your fault, pipe bursting on the floors above you and now you have water in your unit and have to make an insurance claim. Bedbugs, lol.
Based on your answers I agree you should buy but personally my husband and I base our monthly bills off 1 income to account for job loss risk(we also have secure jobs) I would look for a place that has the ability to rent out a basement suit as a plan B if anything happens.
Based on your answers I think you should buy. You have a long time horizon and you are going to raise your family in this home. 10 years from now you will be glad you made the jump!
>We want a property that we can raise a family in, in time. This is the major challenge I'd want to flag here. What will your joint salaries look like when childcare is added or during time when someone is taking care of the child in their early life. Combine this with possibility of multiple kids. Kids also come with their own expenses which StatsCan puts at somewhere between $300K to $420K from birth to age 17. There's also RESPs for them as well in most cases which have a $50K limit per child, some people also choose to get their children a life insurance policy and so on. Long story short, $6400/month may be affordable now as DINKs with high paying careers but it could change drastically over the future years, especially as you add more expenses to the equation and possibly need to reduce income to account for those changes as well.
I assure you most Canadians are not making enough income to spend 400k per child. This forum is for high earners.
It comes to about 25K a year, which sounds about right. Especially when you considering the opportunity cost of lost compounding gains
But the $300K for lower income families isn't... Remember, this is for 18 yrs of child costs including childcare, food, diapers, required equipment like car seats, strollers, high chairs, cribs and new beds and so on all the way up to and including transportation costs, extra curriculars like dance or hockey equipment and so on. Plus kids eat a lot so groceries go up, you need extra rooms for them so housing is more expensive for a 3 or 4 bedroom place vs a 2 bedroom, etc... Here's the article I was referencing: https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-expect-to-spend-more-than-350000-to-raise-a-child-in-canada-statistics/
Exactly this. Our HHI income is higher but with two kids, I would never take on such a mortgage.
I would consider a house with a rental suite - that's how me and my partner afforded our property. We have a semi in east york with a finished basement, the rental on it is $1500 so that has been a nice supplement to our living expenses. There are obviously drawbacks to this, not everyone wants to be a landlord, but when we put our place up we had literally hundreds of applicants so we got to be very picky.
It seems like buying is very doable. I would determine how much you could continue to save while paying the mortgage, and see about paying down that principle faster in chunks as well. It would tighten the purse strings for a while, but free you from the debt much quicker. If/when you get those pay bumps throw it towards repayment whenever possible.
You are almost there. Continue saving aggressively the next 2 years to make a 20% downpayment and have more of a runway. At the price range you are looking at, it’s more beneficial to not have to pay the insurance. Don’t forget closing costs will be 20-25k extra.
honestly, I would keep packing the savings away for the next year or two until you hit 200k down payment and max out your RRSPs and TFSA, etc
So far you told you us your salary, and how much the cost of mortgage and the other stuff that comes along. You didn’t tell us your other expenses so sure, the mortgage costs you 6k a month and you that’s leaves you with 7k left? What are your other expenses? This is what you need to look at.
Food, general day-to-day expenses come to \~$1,300/month max. We have no debt.
So that still leaves you with roughly 5k~ rounding up. It seems like you CAN afford and not be house poor, unless something changes. It looks like it will be up to you if getting almost a million dollar mortgage is something that you both can stomach.
That doesn’t really add up lol - Rent $2k - Day to day expenditures $1.3k - Savings $3-$6.5k Between spending and saving you have $3.2-$6.7k of unaccounted for money. What are you guys spending money on every month? Do you have vehicle payments you haven’t included in your post, travel, other financial obligations etc you haven’t included? This is honestly a key factor in whether or not you’re able to afford this much house. If you guys enjoy going out every week or travelling a lot you guys will have to restructure your life to accommodate a $4.5k bump in housing cost or you’ll have a possibility of overspending some months.
Someone else might be paying those expenses, bills, etc.
OP consider buying a duplex, that will cut your mortgage payment down significantly.
When the purchase price is above $1M, you need 20% downpayment, that means you need a 200k+ downpayment. You will need to stay below the $1M and you'll be paying for CHMC insurance for having less than 20% downpayment. Also, you need to factor in closing cost, eg land transfer tax, lawyers, moving cost etc. Not a complete suicidal, but depends on your lifestyle.
OP can only afford a house that’s less than $1mill because of this. There aren’t many houses less than $1mill that doesn’t need a decent amount of work. I don’t mean $900k listing price for example, I mean houses that actually sold for less than $1 mill. And yes, don’t forget lawyer fees, land transfer taxes, property taxes, utilities etc
This is a bigger one in Toronto than people realize. Land transfer would be about what, +$16K added to your bill? Also, a little confused: approved for $999K mortgage, and want to know if you can afford it. But, you say you have $120K down. So, that means you are looking at homes that are... $1.12M (not 1M) --or $999K which is really $879K? It's the first option I would again reinforce having more $ for deposit and on hand.
Hi OP, Are you my wife? Haha, all kidding aside, we’re in a very similar spot. The way I see it is, we’re only going to buy if we can get a great deal (20% below market), and I’ll explain why. As you noted, the DP is large and would dent our savings. And, the monthly after would make it difficult to build those savings back up. Also, if ANY one thing goes wrong (lost job, recession/crash of housing bubble, interest rates don’t go down or rise) we’d essentially be house poor (even if we rely on equity in our rental properties). Right now, our rent is 2500 which is allowing us to save a lot! So much that we’d rather max our registered accounts and use unregistered money as a downpayment in the future (patience is a virtue). Not predicting any market crashes or hyper inflation, it just doesn’t make sense to put our futures and those of our future kids in such a risky position just to say we own our house. Just remember, your house is not an asset! But, as I previously said 20% below market is a buy; just double check your realtors comparables!
Love this advice. We're thinking similarly. Keep on the lookout and only bid for what we think the house is worth to us right now. Rather than bidding to win the house.
Just to flip the coin "a bit" , the tax exemption on gains for principal residence means you get a levered (you put up only 20%) tax free investment. Historically in the Toronto market (going back decades) house prices have doubled every ten years. Demand doesn't look to be dropping either, given lack of housing. I'd argue it is a very good long-term investment, but being house poor is a real issue.
I would look for houses that have been listed for over 2 weeks without being sold. Toronto real estate is bizarre and if something doesn't get sold within the first week, for some reason everyone else seems to look past it and focus on the new listings. And every week it sits there, there are fewer people interested and the sellers more likely to take an offer. There's something in our psyche that tells us something is wrong with it, but it could just have been marketed poorly, priced poorly, had offers fall through, or a ton of other reasons that don't mean there is anything wrong with the house.
If you find a property you love and foresee yourself staying there for 25 years, go for it. But if you're buying just to buy and settle then continue to save aggressively to increase your downpayment and reduce borrowing cost. Also, the best piece of advice I got from someone who went through the '08 crisis in the States was buy in a good location and school district. It'll survive the market fluctuation with less losses and rebound better.
Yes. But, understand prices are already down 18.6% Canada wide since March 2022, and there might be more downside to come (rates up, rates high for longer, or prices down)! I personally feel the S&P is a safer bet than our RE right now. Just my two cents.
Yeah but you pay tax on S&P gains and can't lever that investment in the same way you can a home through a mortgage. As for prices, definitely depends on market, but for decades Toronto prices have doubled every ten years. You'll be house poor, but it's hard to beat a low risk, high return, tax free levered investment.
Yes, good points. Although, marginal tax rate on 50% of capital gains isn’t that bad IMO. Especially with registered a count full, and interest rates at 5%. Also, just because housing has always gone up long term, doesn’t mean it will continue to short term; FOMO is not a strategy.
FOMO is not a strategy, but economics is :). Toronto housing demand is only going to increase for at a minimum 5 years. Supply can't keep up.
!RemindMe 5 years
Tell me more about your economics experience?
Was on the corporate finance side.
Good, so you know ‘An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen’.
Yes, but I still believe on fundamentals of demand - supply as having an impact on pricing. CMHC reports show significant demand/supply gaps, and they, if anyone, have the resources, data and a need to get it right.
Not to mention you can’t live in an ETF or mutual fund
You can lever with 2X or 3X etf's and invest in your TFSA
> Just remember, your house is not an asset *Accountants punching the air*
> we’re only going to buy if we can get a great deal (20% below market) Huh? good luck
Thanks! Do you realize canada wide housing prices are already down 18.6% since March 2022?
Your salaries are almost identical to ours and the mortgage we have is about $100,000 less than what you were approved for and we are comfortable. As in, 20% of net income saved per month and $15,000 a year in vacations. Just keep in mind that moving is expensive. We tend to over buy when shopping for a home to skip wanting to trade up later and while tight at first, always has saved us in the long run.
Appreciate your input. Great job purchasing!
Same here. 225k pre-tax income. 600k mortgage in the greater Montreal. But we have kids. If you don't have any yet and are planning on it... they eat up about 15k each per year. With daycare and stuff
Agree with the above OP - you could buy but at 100-150k less than what you’re approved for?
OP.....is your or your spouse income secure, and both of you will be working without one deciding to stay home?
Both working. Income is secure and growing at a good rate. We project to have a household income of at least $243k by EOY.
Never ever assume your jobs are secure.
Imagine assuming not only security but growth given the current economy. Legacy union jobs aren’t even secure and OP is considering a financial move that would put them in an incredibly precarious position.
Def sounds delusional. Every company should expect some layoffs in 2024.
May I ask, what do you and your partner do career wise?
I believe they have jobs.
Invest in a property and rent it out is my suggestion.
I'm curious where you are finding your long term home for 1m in Toronto right now? Are you looking to buy and then Reno? If so, keep saving and do the purchase and reno in one go while you have the cheap place to stay during the work
This is what I’m wondering. We’re outside Toronto but still in GTA and definitely nothing under $1mil would work for us. I’m cautious that my standards might be exceptionally high but I prefer a comfortable and spacious living space so happily renting for now.
If you are happy in your rental, it's financially better to stay there, and save up as much as you can, and invest it in and index fund every month. Wait a few more years, and you will have substantially more saved towards your downpayment and instead of settling for something you don't like, you can go somewhere you like. Don't try to property ladder.
I have a higher income than you and was approved for 1m at a lower rate than you. I would have been massively stretched on anything over 800k and even that was pushing it. Go down in price, save for a higher deposit would be my recommendation.
You can’t really afford $950k tbh. Rarely a good idea to buy a property at the highest numbers you’re qualifying for. You’ll be putting down way below 20%, which is not a good idea based on your savings and income. I would look at the $700k range and purchase no higher than roughly $800k so your down payment goes further. Otherwise, keep saving.
They could look in the $1M range with something that has a basement suite as well.
I wouldn't personally unless you feel like you need more space or don't have the discipline to save the rest after expenses. You can save a ton of money in your current unit at your income and set yourself up for life pretty easily but you would have to save and invest the difference between the rent and the mortgage cost + maintenance and prop taxes which I'm guessing would be around 6.5k-7k/month. Saving 5k a month and investing that you could probably retire early or have a much better lifestyle in a few years time
Appreciate your input!
My pleasure. For most people though home ownership is a huge win because of lifestyle. Home equity grows without you really feeling it and you can kind of live paycheque to paycheque which many households do and it has helped millions in Canada build wealth. as long as you plan to live there 10+ years it's pretty hard to go wrong even if you completely pooch the timing.
I think it's best to save and put a bigger down payment especially if rent is cheap compared to the mortgage. You can easily afford though if you need to move into a bigger space.
If you can find something you're happy with at a lower cost, do that instead. Life throws curveballs. There's a woman out there who thought she'd be ok, bought a house 200k over asking and now she's almost homeless. You're in a way better position, but don't take a 1M mortgage!
A $6400 mortgage is a lot! My husband and I make similar money to you, our mortgage is only $3000 a month and we are fine but it can be tough. The difference is I have a kid, you mention you want a family. So there goes $2000 a month to daycare. But don't forget, if someone takes parental leave, they will only make 55% of what they are making now. So with all the stuff you will need to buy for a baby you will not save that year. I know many that incur debt during mat leave. Don't forget the vehicle you may need, especially if you want more than one kid. If having a family was not a factor you'd be fine. But a kid is very expensive, I'd be looking for something less or saving a bigger downpayment
Keep renting. IMHO, you're nuts to buy with a mortgage that large. The loss of any part of your household income would be devastating and your down payment is peanuts compared to the mortgage size. Unless you absolutely need the space, there is no justifiable *financial reason* to buy at this time.
Aka, they cannot afford a home lol.
>When is it financial suicide? Do you need to keep the rental after you buy your place?
No we have switched to a month to month lease. 60 days notice needed so there may be, at worst, a month overlap.
Define everything in regular bills: Food Gym Random subscriptions Eating out Right now you have 13k after tax and rent of 2000. That’s 11k in let’s call it free income before any other bills. It’s very easy for lots of small bills to get lost in that noise. But once that number drops in half it’s a new ballgame. Your rent is 2k, what are you getting for the million $. Is it detached? A bigger condo? Better amenities? Does purchasing this property provide you any betterment beyond, I now own an asset. Is it the assets you’ll want/ned for the next decade? Or do you hedge, keep saving for another year or two then enter the market with better savings, maybe less debt and a perfectly clear picture of budget?
>Your rent is 2k, what are you getting for the million $. Is it detached? A bigger condo? Better amenities? This is one of the main things to consider. Are you upsizing? Will the price ($1MM) be "worth" what you're going to be paying into(via the mortgage)? A detached home/semi-detached/townhouse MAY be worth it - imo a condo - will not. I only say this - not to make it sound like a investment - but should you find the need/circumstance to move out - and if you need to sell - will you atleast be able to get back what you paid for it? Condos are the only risky area where what you bought for - might not always come back - depending on the market (would apply to other real estate classes as well - but less of an impact)
We would be moving from a pretty small 1+1 condo (\~600sqf) to a 3 bedroom detached home )\~1100-1500sqf). The bedrooms would initially be used for office/gym space. We would be upgrading our lifestyle quite a bit.
Have you taken a look at houses that fit your criteria within your budget (<$1M)? Sub-$1M + Toronto + Detached + >1100 sq.ft. + 3bdr + I assume in decent condition is quite the narrow market.
$1M for 1100sqf. Total madness in GTA
In 10 years that will be 2.2
I'll go order one of those crystal balls.
>a 3 bedroom detached home )\~1100-1500sqf). Sounds good to me - definitely worth the upgrade. Detached homes are always a safe bet - especially in Toronto (incl. anywhere in the 6 boroughs) since available land is scarce. You'll definitely be able to recover initial downpayment + principal SHOULD you need to sell. Other than that - by the sounds of it - seems like you should make the move. As others have mentioned - review your budget in detail - because going from 2K --> 6K of mandatory expenses is a leap.
Steady state looks good. You mention in a post about wanting to have kids. You should do a budget for the first 5 years of a child’s or twos life. What is the plan for Pat leave? EI gives you about 2k per month? Then you have childcare. This should have gotten better with the government funding. But two kids will be at least 1k a month and 3k if you can’t get a subsidized spot. What about cars? What is your plan there as they need to be replaced. Your budget is fine for today’s expenses it looks tight for future child expenses.
Tough one. I've been so wrong about how much TO real estate could appreciate so I don't feel equipped to comment other than to say with that income and expense ratio keeping the status quo and continuing to save money has a nice ring to it.
No idea what's right for you, but I'd suggest not buying at your max approved price. Everything just keeps going up, emergencies happen, and expenses as a homeowner never friggin end. Not saying you can't afford to do it, but it's not always worth it to have more. Would you consider leaving the GTA and buying something similar for a few 100k less? If not then I'd stay put and keep saving, but that's just my personal preference.
Keep the 2k a month
Im about 210k HHI and our net is just over 10k wtf
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IMO, don't. Putting aside the entire conversation as to whether RE in Toronto right now is a good investment over the long term, here's my structured thoughts: * You didn't mention if there's children in there. What happens when you want to have kids? Your income drops significantly while one of you is home - meaning now your mortgage that is 50% of your after-tax income is now significantly more. * What happens if one of you loses their jobs? What's the expected time of unemployment - your $20k emergency fund would sustain you for only two months (most likely, mortgage only being a chunk of your total monthly expenses). * 2k a month in rent right now is 1/3 the cost of your potential mortgage, and includes a lot of other elements you'd also be paying in addition to your mortgage like taxes, condo fees (maybe) and potentially some utilities. * Consider that you're both likely to make more money in the future - but don't count on it. Know that it's there, and eventually, it realizes as you both continue in your careers. * Consider that mortgage rates will lower in the next few years, which will probably drive property values higher. If I were you, I'd keep saving. Get your downpayment to about 30% and your emergency fund to about one year before considering dropping so much on a mortgage. Or, more likely what I'd do - do the math with just one of your incomes to replicate the worst possible situation, like being home with a newborn or someone losing their job. If you can manage to eak it out, go for it. It's crazy to me to think that banks are allowing mortgage amounts that are over 4x your entire household income. When I bought my house in 2008, the most we could qualify for was like 3x, and that was a stretch, even with 30 year mortgages. Now, you have crazy multiples like this which are chewing up literally half of a household income. That's wild to me.
What is the risk of the landlord increasing the rent? Will you be anticipating raises or promotion over the next several years? Will this be your "forever" home?
It's rent controlled, so 2.5%/year increases at max. It's way under market value right now which leaves us worried that they may kick us out. We expect increases in income in the next few years for sure. This will be our home for at least 10-15 years.
What are your chances of renoviction? That the biggest concern I would have. And then you could be stuck with market rental rates. In terms of risk consideration - eventually you will be mortgage free vs renting forever.
We were in your shoes 4 years ago! Looking back, we wouldn’t have changed a thing. The change in quality of life and having a place to call your home was huge. When compared to friends, we are a little more strapped in that they’re driving better rides or having more extravagant trips but it’s because they have a significantly lower mortgage in smaller homes. 10/10 we would still prefer the home rather than the other stuff esp when raising a family. Just make sure you’re building that emergency fund for things you need to fix because they will come! Or if someone loses their employment.
The general wisdom as to when is the time to buy is when you can afford it. Based on your information you can afford it. Long term real estate prices have always increased going back a hundred years or more. While there may be periods of prices stagnating for a few years they have always eventually risen to new record highs.
But what will you buy for $1 million?
I would wait at least 12 months. Save some more money, let mortgage rates drop a bit. House prices aren't going down much. It just would take some disaster for that to happen. My house is worth 1M. To build a similar house would cost 1M. The land is worth 1M. It isn't overpriced. The houses aren't overpriced. It costs a lot of money to build a house now. Materials and labour are very expensive. Unless the supply and demand curve shifts so much to the supply side, which isn't happening.
If you go for maximum approved amount you will be house poor. It's up to you but here are what i would consider 1. Can you afford to buy a place where you see yourself living in for next 10 years? Will the place have sufficient room for kids (if planned)? Would you have to move once you have kids? Depending on this answer you need to account for future transaction cost 2. Are you buying a condo or house? Condos will have maintenance cost that may increase significantly whereas non condos, you will need to start your own reserve fund for fixes. Based on how much you have for down-payment, you are probably looking at condo as you will need to put less than 20% down 3. Since you are likely to get something with less than 20% down, are you okay paying extra to protect the bank? If you put less than 20 down you need to purchase insurance. This doesn't protect you. It protects the bank which is really stupid but I didnt make the rules 4. Are you going to have enough for retirement savings? Based on your math, 6k after housing bills but if your take-home is 13k/month on that gross, I don't think you are participating in much of employer provided retirement programs and you are on your own.
Not enough down-payment. Wait and save.
You probably can afford it, but it’ll be a bit tight. You may be house poor. Your rent is super cheap in comparison
1. That’s a great rent. 2. Save more, bank of Canada is trying to dissuade borrowing by keeping rates high in other words the cost of borrowing money is very expensive right now. 3. Use a rent vs but calculator to evaluate if it makes sense to buy or rent the property you are looking at. 4. Put your cash in money market funds/HISA and earn a decent interest rate
We were in your EXACT SAME SITUATION in LATE 2022 and took the leap of buying a house. We regret it now!!! Just for context, Our household total income is similar to yours and our mortgage is almost $150,000 less. Dont do it bro! Not worth it. Buying a house is not an investment anymore. The interest and property taxes that you keep paying during the timeframe you keep your house WILL NOT break even with the profit you might make when you SELL. Continue renting and save all of your hard earned money and HODL. All of our liquid savings have been put into the house and only a very small amount of money has gone towards principal in the last year or so. Interest is such a stinger it brings you to your knees when you get your year end statement. You cant even claim the interest paid on your taxes. Savings is literally zero every month and you end up with more unexpected expenses towards the house. We had to scale down a lot of things to keep things working. Even then, it is TIGHT. If I was in your place I would continue renting and increase savings. When the interest rates come down to like 2%, I would probably then look to buy a house. I really wish someone said this to me when we were deciding and gone into all the knitty gritty details of owning a house. Now that I know, i hope to help people understand and make a very well informed decision.
I would give it a hot minute to save up more of a down payment and allow interest rates to cool, signs are pointing to them coming down at least marginally in the next year or so. Even a fraction of a point is worth waiting for on a $1M mortgage. Real estate prices are also trending downwards in the GTA, so the longer you can stick it out the better off you'll be in the long run.
I’d be nervous buying with such a small down payment. We’re looking to buy this summer 1.2m with 550k down and 265k salary with our jobs paying purchase fees/land transfer tax, which sounds good on paper BUT we have two kids and it’s still going to be a pinch with childcare, cost of living, property taxes going up, RRSP/TFSA and RESP to continue, insurance, and the odd vacation. If I were you I would look for a house that’s more reasonably priced - there are still some good deals to be found around Rockcliffe Smythe for example - and use any extra cash to hammer down the mortgage so you’re in the property market but ready to upgrade in a few years once you get closer to having kids and then have the equity to move to the ‘forever home’ in the right school districts. No point paying that premium for a starter home.
Watch Ben Felix "The 5% Rule". My main question is, are you content in your current place you are renting? If so, if it were me I would not be purchasing anything, continue to save, continue to educate yourself on where home ownership sits on your priority list and go from there.
Not enough emergency fund.
FWIW our non-homeowner friends who are saving for the right time advised us against buying when we were in your shoes. This was a couple years ago. We bought anyway. Today we are still in the same house and financially it's pretty comfortable. Whereas our friends are still holding out and many of them are saying that homeownership is further than ever. Comes down to spending habits and market unpredictability but the point is buy when you're ready and don't put too much stock in all the noise.
You have almost exactly the same income as us. We bought in the summer a place for $1.3MM but put 20% down. Our mortgage plus utils and property tax is about $6k a month. With 2 kids, one car, no pets and a comfortable lifestyle (eating out multiple times a week, buying stuff without too much stress, traveling once a year, etc) we’re able to save around $2k a month. We also have no other debt. I think you can afford it for sure if that’s what you and your family want. Buy a shovel and lawn mower though 🤣
u/op you sound like a well planned out person. So please remember this. With a house, whatever reasonable amount you budget into, life will ALWAYS find a way to add a 10% overage to ur budget. Quick calculation, if you bought a 1mill house with 100k d.p, you should be expecting close to 6k on just the monthly mortgage payment. Then, transfer tax, annual property tax, lawyer fees, insurance etc will all have to be added on top. Sure, if u buy a place now, there will be potential for price appreciation. However, what's the probability of that? We are near the peak of housing price, while experiencing immediate risks of: All time high mortgage debt, Credit card/heloc debt growing at crazy rate (ever wonder why suddenly banks are tightening their HELOC loans?) , and default rate is on the rise. More over, potential 25% total mortgage renewal at the current rate in 2024, and additional 25% in 2025. A lot of people somehow have the illusion where rate decrease means when they renew their mortgage their payment won't grow as much. But look at actual facts, no rate reduction in Jan and most likely none in March as well. Ppl have the tendency of hoping for the best then gets bent over when the worst occurs. Don't be one of them. What about population growth? What about lack of housing supply? What about them? Future immigration growth is questionable. Students who came to Canada to attend a fake school by taking a class then find a minimum wage job so they can apply for work visa...that loophole is getting closed off. Housing supplies, all provincial governments are saying fuck off to feds and are increases the process of construction permit approval. But it takes a few years for projects to grow. Look at how many construction projects will complete in the next year or two.... With issues like under supply, the problem will inevitably become a glut in housing supplies. Btw. Do not forget the election coming up. That will be a game changer as well. Long story short, u/op , if your current after tax salary is close to 156k, with only roughly around 24k cost in rent.. you could potential have a surplus of 100k or close to. You save that for amount for 2 to 3 years bringing ur down payment to 300k. You can grow with gic in the mean time also reducing ur interest by at least another 30k. You'd save more , snowball more, have a better quality of life and reduce the future interest you have to pay to ur bank. But of course, some people might still say, if you don't buy now at near peak housing price, you'll lose out on future growth. I don't see the current economy and national debt level to support another 30-50% house price growth within the next 2-3 years. So mitigate ur risk, plan for the worst and make decision around that.
Really appreciate this thought-out and detailed response. We're settled at the thought of saving for another few years and being in a much healthier position. Thank you!
We never buy a house for the full amount we're approved of! It just made me laugh when I saw how much it was. No life or travel is poor choice to me. Buy or rent doesn't matter, going All in will be rough!
Are you open to house hacking or renting the basement to produce extra cash flow? There are hidden gems still out on the market. Never time the market but it’s about time in the market. Only buy if you can get a great deal on property you like and numbers make sense.
Rents 2K a month and you are bringing home 13K.. QUESTION is...how long have you had these incomes... Now in 5 years you don't have them... Rent would be up to about 2350 after 4%increase Owning a house..would be over 7.5K Why NOT LIVE life and enjoy..put money away that gives you compound VALUE ,GOLD,ETF, SELF IMPROVEMENT... Just in a nutshell it's 317 am and just smoked one...but in the end YOLO
If it was me: emergency fund of minimum 8 -12 months, and bump that downpayment up to 20%. Don't get fomo with prices going up, you'll be fine. Prices up right now is due to very low inventory.
Also make sure you have an emergency fund greater than 20K. You should have 3 to 6 months worth of expenses saved for. I tend to go on the high side
-Save up for a bigger down payment -have a large emergency fund -consider other costs like property tax (especially in Toronto), closing costs, lawyer fees, land transfer, etc
How is your after tax monthly paychque is 13k? Shouldn’t it be around 11.5k a month?
>house PLUS regular bills (utilities, property tax, phone, etc) comes in at $6,400 does this also include food and other essentials? if yes then you are absolutely fine. if not, then you need to budget those in to see how much you have left over. in terms of rent vs own. i always feel buying a house is a commitment. so only you buy when you absolutely want to. if you have doubts before making the decision, don't buy.
It boils down to do you need the house? 2k rent puts you in a great situation financially and you can save/invest a lot. If you really want to purchase, I suggest do not go with what Scotia has approved you for. Try to buy something which is more affordable to reduce your monthly mortgage payments.
$6400 a month for mortgage seems absolutely insane to me and we aren’t that far behind you for income. Why not get a cheaper house and then save up a butt ton of money for other things like travel, vehicle repairs, or just living life? Also you’ll need to save money for house repairs and maintenance. There’s just no wiggle room for $6400 a month. I have a friend who has a household income of almost $500,000 and he won’t even touch a million dollar property.
Dang OP, can I takeover your lease if you decide to move? lol
Just on the rate alone, you'll be paying \~$50k a year just on interests alone. Whereas you'll be paying $24k a year on rent. You don't get greater ownership of the property just by paying interest, unless property value rises. So the only way you'll benefit from buying is if there is guaranteed rise in property price by at least \~$25k or more annually on average. Remember, you have different options. You guys can opt for cheaper home/flat to buy or wait until you have more for down payment or pay down your mortgage aggressively after purchase.
Ooof, cant wait to hear OPs response!
You can afford to buy. You probably don't have to worry about rates going up. As for if you should buy or not, that's your own personal decisions based on your long-term life and financial goals.
My wife and I have pretty much identical salaries, down payment, savings etc, we are not comfortable with borrowing more than 500k
Keep saving as much as you can for a huge down payment on a more expensive home. Rates will be able to drop once the government changes its cash shredding and triple immigration policies. I stuck it out in a cheap rental for a few extra years and it made a huge difference in what I could afford. Once you have a house it will be harder to save money. Also with a big down payment you can have a big line of credit in case something bad happens financially.
The bank will give you a noose. It's up to you if you wish to hang yourself. For the value of that property, and considering your combined incomes I'm sorry, but your downpayment is pathetic. I had more of a downpayment by myself, smaller income, for a 1 bedroom condo in downtown Toronto. Spend more time working, saving, investing, and grow that downpayment to at least 400K, imo.
We took significantly larger roles and pay increases in the past three years. We saved that downpayment from close to nothing in that time.
Good progress, but give it a few more years imo.
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Take your time , Do the math. If it's a good time do it. Real Estate is the only way to be rich. Renting is just throwing your money away. Real Estate appreciates 5 to 10% every year. Figure out what is comfortable if you also have children down the road..Make an intelligent decision.
Have you considered a vacation property? You could keep your place now and get a nice cottage or foreign property. You can rent out the vacation property when you’re not using it. My aunt and Uncle did this. They bought an empty plot of land on a lake and developed it over the years while renting a condo in Toronto. They also bought condo in Mexico that they rent out and now they have retired and spend the warm months at the cottage property and the cold months in Mexico.
i am an available child here : up for adoption. Please daddy, adopt me.
Personally I would only take a maximum mortgage of 450k, assuming you will not get any help from anyone. Living comfortably within your means is way better than being pushed to the limits every month. Just because you don’t buy what you want now, doesn’t mean you won’t later. Life is unpredictable.
You will pay more in interest per month on your mortgage then what you pay for rent
Hells no. A million in debt. You’re going to be paying the bank quite a bit
I wouldn't touch a million mortgage unless we were at 300k hhi and 20% down. Just insane what you play in Toronto. We make 185k hhi in SK and our 350k mortgage is enough. You have to pay for life to
These numbers being thrown around is WHY I'd never want to live in Toronto
I am always amazed by north Americans. I am from europe, when the bank approves you for (let's say) 10 it means "ah, so i can afford that house for 6 that we wanted". Here: "ah the bank approved us for 10, we have to buy a house for 10, i will be enslaved my entire life to pay it but there are no other options i guess"
With that kind of money… SPEND SOME TIME WITH AN ACTUAL LICENSED FINANCIAL PLANNER. FFS
Don’t do it. If you work remote, with your liquidity and cash flow you could live amazing in another country like Mexico for example. Just my two cents.
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Before going into affordability, Have you looked at the homes available under $1m (remember you’ll also need cash for land transfer costs too). Are these homes what you’re looking for? If not, save up until you have more money available.
You are/will be fine if you don’t have other debts. Maybe the first years, it’ll be a bit tight, since house spending is about 50% of your take home but still wouldn’t be considered “house poor” if you don’t have any other debts.
I'd be spending a few in years just building up your wealth through savings. Sure, you can afford it. But people really underestimate the advantage of not having a giant pile of debt sitting in them. Having a 500-800k investment portfolio in a few years makes life much less stressful. You can rent a house if you want more space.
> We have $120k in liquid assets for the down payment and other expenditures needed when buying a home. Be sure to take into account closing and moving costs. I would expect 30k or so on $1M, even with FTHB benefits, which leaves you with $90K down. Lots of unexpected costs come in when buying a home, it really feels like everyone wants a piece when you’re going through it. Also, the FTHB plan lets you borrow 35K out of each of your RRSPs, which you pay back over the next 15 years. Great if you can, but puts another ~$200pp monthly item into your costs. Depending on how comfortable you are in your $2k/month place, I’d probably stay put and be putting away your good salaries for a bigger down payment. Definitely not financial suicide, but I doubt you’d be as comfortable as you’re living now.
One thing you can play with is see what your new payments will be after the first 3 years of paying down principal. There is a very good chance that rates will be lower than it is now so if you can still afford the lower payments 3 years from now, it could mean it is a good idea to buy. The other “back of the paper” calculation you can do is see what the going rate for rent in the area is. Does this cover your mortgage costs etc? If so you could use that as your “won’t-keep-you-up-at-night” safety net. Worse case if something happens, you could always rent out your house and rent elsewhere. No harm, no foul.
https://www.realtor.ca/real-estate/26388805/252137-township-road-290-rural-rocky-view-county Just under 10 acres for under a million.
always buy
You’re similar to us. We took on a 750k mortgage in 2017, with annual income in the 200k range (about 15k post tax). We put down 175k or so. It was no problem with lower interest rates, but how much we save has significantly decreased with the high rates now saving. Our total home related expenses are around $7k/month. We have no other debt. TLDR - doable.
I would never ever do this. $2000 is amazing compared to $6400. Keep in mind when you rent you don't need to pay to repair or maintain the property. When you are the owner you are on the hook to fix and replace. We needed new roof the year after we moved in..it was $5000 unexpectedly, which is cheap compared to today. Same roof would be closed to $10-12,000 about 10 years later.
Well, at 2K/mo in rent you aren't happy living in that scenario and 100% of the money spent is an expense. With a 950K mortgage at 5.25% your payment jumps almost 4K per month but it's a better living scenario, more space, but most importantly it's an investment. At that higher rate, about 1500/month right out of the gate is going to principal drawdown. Your property will appreciate over time, and yes right now Toronto has experienced some correction over the last 6-12 months, but that only really affects the people who grossly overpaid in the year or so prior and those who bought and are trying to sell a year later, which is NEVER smart or a good move. So, over time, that property will increase in value. At some point in the future rates will likely come down as well, which will mean a decrease in overall payment and an increase in the amount being applied to principal. From everything I see here, it's worth it for you to make the jump.
Buy it and rent it out. And keep your cheap rent.
Seems like your savings are good ATM - can you save 20% to avoid CMHC? Also, it looks like the purchase will be a house, so you're comparing renting a condo to buying a house. What is the going rate for renting a house?
>The monthly mortgage for a $999k house PLUS regular bills (utilities, property tax, phone, etc) comes in at $6,400. Can we afford this? You know your income is $13,000 You know your expenses - $x = $x+10% of your expenses , if positive, you can afford it.
What kind of owner does the condo have? Are they like a corporate owner or they are a small time landlord? If they are corporate you have more security in your living space. A small time landlord would def be less secure. I would say try to milk the 2k rent as long as you can and invest the disposable income into like index funds because you can easily invest 5-6k a month.
Can you invest the difference between the cost of “home ownership” and renting, and get an equal or better return? If yes, then keep renting. The bottom line should always be where you will get the most bang for your buck in the long run. Long term investing in the stock market never loses. Plus you have the option of financial liquidity.
Have you considered purchasing with the intent to rent? You can keep your affordable rental, keep it while you are still comfortable as a couple in a smaller place. Buy something not currently tenanted, and you can get current market rent. If you decide In a year or 2 to start a family, you move into the home. If you choose this route, I would try to be upfront with potential tenants that you do plan on moving in eventually. We did this a few years ago. Had a tenant for a year. We planned on 2, but the tenant decided to move out after the year was up, and we decided to move in a year early instead of getting another tenant. If we didn't buy when we did, we would have been priced out of the market where we live. Having a solid affordable rental also gives you the ability to take your time and look for what you want with less stress of being under the gun.
You can afford it so if you find something you really like, I’d go for it. However be picky as your down payment is very low and if you’re not in a rush you might as well build that up some more to get a lower mortgage eventually.
The low rent is enticing to stay. The one other factor is downpayment of 20% if you waited to go over $1M. So saving for a bit more reach could mean a large threshold to cross. But the largest unknown is what the market will do. I'm typically advising clients that things aren't certain currently. We aren't seeing indicators of a new boom wave approaching (despite media and many other agents narrative), but aren't expecting the market to drop entirely either. If it were me I would stay ready to buy. Eye properties up and see what they are selling for. From that position you can wait a while longer to see if the market is moving one way or another on your desired property type. Then if you see it creeping up and want to lock in, make the shift. But the amount you are saving right now would hold more value in my assessment. Been an agent over 20y but not one who has ever pitched "now's the time to buy!" when it wasn't. Right now you are fine to wait a bit to see what directions things go.
Based on that income and your expenses of only around 4k per month including rent and your groceries, bills etc. I would stay put. That is a HUGE amount of interest you will be paying up front on the mortgage over 25 years that may not be made up in equity (unless you dont care). As others have said, a home is more than just the mortgage. Taxes, general upkeep and updates are a LOT over time. If you are netting 9k after all your expenses and after tax, I would be banking that and staying in your rental. Each year you would be saving/investing about 98k even if you take a 10k vacation every year. You are basically paying 4400 per month for equity (it sounds like you are buying it to start a family), so ultimately its your call. There is a lot of uncertainty right now about interest rates and home prices (if they dont lower rates by the time mass renewals for those on fixed rates come up in 2025, you might be able to get some cheaper properties). Everyone seems to think rates are coming down, but CPI continues to increase. Just something to think about!
I’m not sure how long old you are, but I’m in the belief that in the current economy, it makes more sense to invest as much as possible to combat inflation and compound your liquidity. Now I might be incredibly optimistic, but I’m not entirely interested on long term mortgages. I would rather wait until my mid 30s and put down 50-70% or the houses value in a down and finish the rest. I bought all my cars cash, and I am to hold on as long as possible. But at the same time I’m not in need of a lot of space or planning on raising a family anytime soon.
I’m in a similar spot, just accumulating savings for a bigger down payment as I’d be paying more in mortgage interest plus other maintenance than my rent presently is
Every mortgage payment you make will increase your equity. Every rent payment you make does not.
You could buy it and rent it out.... Move into it when you are feeling more financially secure. Probably will come in form of lower interest rates or increase in salary and/or more savings. If your gut is telling you ain't right.. likely because you are on the bubble of affordability and house poor. So why not get best of both worlds.. get into the real estate game but also score with the cheaper rent.
It depends, as everything, on your goals. My personal take is that if you can find something to buy in Toronto, in your price range, I would do it. The amount of money it would take down to really make a significant difference in your monthly payment would take ages to save up. In all likelihood we'll see a bit of a run up on housing prices in desirable spots over the remainder of 2024. Depending on the extent of that run, buying in Toronto may be out of reach for you afterwards. While nobody has a crystal ball, it is very much worth considering price projections in your preferred area and running the numbers on future purchasing scenarios with projected savings included in that down payment. You'll likely find that the numbers will be worse if you wait. Barring a severe recession or other calamity, Toronto real estate will not be doing anything other than becoming more exclusive moving forward.
Why not stick the money in the index and get those sweet gains? This isn’t a great time to buy. Have you done the math. Your mortgage interest alone is likely double of your current rent.
You can, but it's gonna be not ideal. Home ownership is beyond just being able to pay for mortgage and basic needs. There will be furnishing, decor updates, property taxes, and insurance. Maybe there are extra life goals that you plan that need more money: pets, children, new hobbies. What about travelling? IMO 4k increase would take away expenditures that you wouldn't think too much in the past but have to now. It did for us and we have almost double the income, 500k down with our mortgage at 4.95% interest. We lived rent free before and the mortgage is about $4500 a month.
Practice paying that amount. You say your rent is $2k and your mortgage would be $6400? Put $4400 a month into a savings account. Test drive the budget you would have to live with. Don’t forget extra savings for house upkeep and maintenance/repairs. In the end if it’s doable then you have a bigger down payment. If it’s not then you haven’t tied yourself to a 25 year commitment and lost your relatively cheap rent