Buy a Home or Continue Saving???

[ARK]

I am 38 years old and have 3 kids (7, 4 & 2), Presently renting an apartment in Mississauga. No debts. Doing 2 jobs, one regular FT making $50K and part time on weekends only making $8k. Wife not working.

Paying rent $1200 incl. utilities
Insurance $150
Gas $150
Grocery $800

Net income is $4000 including child tax and the expenses per month are approx $2500. I am saving $1500 per month and putting in PCF savings account. Total savings at present are approx 15K.

At this point I am undecided whether to continue saving or to buy a home. I have following questions in my mind.

1. If I continue saving for another year than I will have approx 30-35k in saving and at that time when I will buy a home then I have to pay less insurance on Mortgage.

2. Housing price are stable at present but some people are saying it will go down 5-10% in a year or two. Should I wait to take the advantage? or will it continue going up and I will end up paying more for a house in 1-2 years time.

3. Wife is not working and she is not planning to work in near future since kids are small, therefore if I buy a home (let say for $350k), then will my income be enough to meet expenses? or as my friends says that there are always some kind of expenses once you are a homeowner.

Looking forward for some nice suggestions from my RFD friends :)

[rdtx2002]

2. no one can predict what will happen in the future... quite frankly... no one really predicted this well of a housing market imo.

3. as for extra expenditures.. well... it would depend on the house and it's condition. I'm sure you won't 'like' the house the way it is when you buy it and i'm sure you will do some renovations on it.

[neospice]

If anything, interest rates are expected to drop starting in Spring of 2007, and by summer they are expected to be around 5.25% (drop from 6% now). Maybe wait a few months and see how things play out...

[Junoon123]

Let me throw my 2 cent worth. In my opinion the housing prices will fall. They have to they have been going up up and up. 10-20% pullback is what i think will happen. Now their are plenty here who will say the market will not fall 10-20% something like maybe 5% with them i disagree.

Now i did my Bachelors from the US and not Canada so i really can't say what methods are used here when purchasing the house. In the US its your
income X 3
In your case its

50000 X 3=150,000. I really don't think you can buy something decent for that much money. i mean in mississiauga you can't even find a shack for that kindda money which tells me that this bubble will burst.

If you want to buy and since this is your first house i suggest buy something as cheap as you can .350,000 is a lot of money go for something cheaper and if the prices fall stay put for 10-20 years i mean eventually prices will go back.
These are your 2 scenerios now please note i am not a professional IM JUST PUTTING MY 2 CENT worth.
Thanks
GodSpeed

[pitz]

deleted

[thelefteyeguy]

a $350K house with a mortgage of $287K (assuming you have 62K for downpayment and not have to get mortgage insurance) will prob cost you a good $1300 in mortgage a month.

monthly:
$1300+ on mortgage (much more if you can't get a 62K downpayment)
$250-300 in property tax in mississauga
$35 for home insurance
$250-300+ utilities
phone? cable? cellphone? life insurance for your family?
$800 food?
$300 car expenses? (lease, finance? own?)
clothes? gifts? toys? etc?
Misc slush fund incase something happens to the house, emergency etc

that's 2900-3000+ in expenses.


i think you should save and look at getting at least the ability to put 25% downpayment

[AlexH]

I wish I had kept saving for another year. Homeowner expenses really add up. :(

[ARK]

Let me throw my 2 cent worth. In my opinion the housing prices will fall. They have to they have been going up up and up. 10-20% pullback is what i think will happen. Now their are plenty here who will say the market will not fall 10-20% something like maybe 5% with them i disagree.

Now i did my Bachelors from the US and not Canada so i really can't say what methods are used here when purchasing the house. In the US its your
income X 3
In your case its

50000 X 3=150,000. I really don't think you can buy something decent for that much money. i mean in mississiauga you can't even find a shack for that kindda money which tells me that this bubble will burst.

If you want to buy and since this is your first house i suggest buy something as cheap as you can .350,000 is a lot of money go for something cheaper and if the prices fall stay put for 10-20 years i mean eventually prices will go back.
These are your 2 scenerios now please note i am not a professional IM JUST PUTTING MY 2 CENT worth.
Thanks
GodSpeed

In my case 50000x3=150000 is not relevant since I am already saving 1500 per month and with $1200 of rent, I have a total of approx $2700 to use for mortgage, utilities, taxes etc. And as mentioned by someone, with this money I can afford a $350k house provided if I pay 25% downpayment. But then my hands will be tight and for any other expenses I will have to look for other income source.

Anyway thanks for your input

[ARK]

a $350K house with a mortgage of $287K (assuming you have 62K for downpayment and not have to get mortgage insurance) will prob cost you a good $1300 in mortgage a month.

monthly:
$1300+ on mortgage (much more if you can't get a 62K downpayment)
$250-300 in property tax in mississauga
$35 for home insurance
$250-300+ utilities
phone? cable? cellphone? life insurance for your family?
$800 food?
$300 car expenses? (lease, finance? own?)
clothes? gifts? toys? etc?
Misc slush fund incase something happens to the house, emergency etc

that's 2900-3000+ in expenses.


i think you should save and look at getting at least the ability to put 25% downpayment

Thanks for your reply. Assuming if I buy a house than i will be paying approx $3000 in expenses and for any additional expenses I will have to look for other income sources.

I did an analysis and here are the risk factors involved:

Buying House Now:

* Prices will come down, lets say 10%, then I will miss the chance of buying later at a lower price- Quiet LIKELY
* Interest rate going up- NOT LIKELY IN SHORT TERM
* My hands will be tight if I incur additional expenses.
* Likelihood of going into debts.
* No savings

Buying House Later

* House prices continue to rise, will end up paying more.

Your suggestion to continue saving is more realistic in my case, since buying a house is not a problem but I will enjoy more in my new home when I will have peace of mind that I can afford it easily and will not go into debts, especially when my kids are growing and most likely my expenses will continue to increase as the time goes by.

[frogger]

Don't overdo it on the house, if you are managing in an apartment a $280,000 semi somewhere like Milton will feel pretty luxurious and you can always change homes again in 5 years if you want something bigger at that point.

Saving for one more year is probably a good idea.. I don't see prices going up in many areas. Here is a good mortgage calculator.
http://www.canadamortgage.com/calculators/amortization.cgi

Getting a $250,000 mortgage at 5% would probably leave your monthly fixed housing expenditures ~$2000. Getting a $300,000 mortgage may be tough (5times your annual gross income).

[TrevorK]

Honestly, I don't see how you can realistically afford to own a home that costs $300,000.

Mortgage: $1541 ($265K @ 5% 25years, not counting CMHC fees)
Property Tax: $250
Insurance: $45
Utilities: $300
TV or Phone or Internet: $50
= $2186 in house related expenses

Groceries: $800
Auto Gas: $150
Auto Insurance: $150

= $3286 in mandatory expenses


Which means you have $700 / month to spend on:
- Unexpected car emergencies
- Unexpected home emergencies
- Holidays/Vacations
- Retirement savings
- Savings for children's education
- Money for childrens activities


Now, don't get me wrong. It's possible. But it almost sounds like you'll be doing this routine for many, many years to come which really doesn't help your quality of life.

I'd look towards buying something a bit lower priced, so that you are able to have money to pay for unexpected expenses and enjoy the little things.

[anom]

Honestly, I don't see how you can realistically afford to own a home that costs $300,000.

Mortgage: $1541 ($265K @ 5% 25years, not counting CMHC fees)
Property Tax: $250
Insurance: $45
Utilities: $300
TV or Phone or Internet: $50
= $2186 in house related expenses

Groceries: $800
Auto Gas: $150
Auto Insurance: $150

= $3286 in mandatory expenses


Which means you have $700 / month to spend on:
- Unexpected car emergencies
- Unexpected home emergencies
- Holidays/Vacations
- Retirement savings
- Savings for children's education
- Money for childrens activities


Now, don't get me wrong. It's possible. But it almost sounds like you'll be doing this routine for many, many years to come which really doesn't help your quality of life.

I'd look towards buying something a bit lower priced, so that you are able to have money to pay for unexpected expenses and enjoy the little things.

I have a question, with ARK's income would they even be able to get a mortgage for that amount??

[cannon_fodder]

One thing that you may not have thought of is when trying to get a mortgage they will look at all forms of credit that you have. If you have a Visa and an Amex and a MasterCard and a Line of Credit, etc., etc., etc. they might 'penalize' you by calculating what would be your ability to pay down a mortgage if you maxed out all of those other forms of credit.

This came as a surprise to me years ago when I went to apply for my 1st mortgage. I naively thought that they would think of me as more creditworthy, rather than consider me riskier.

I cancelled all credit cards I didn't need and asked for the one that I kept to have the limit lowered.

As for a "how much mortgage can you afford" there are several calculators. This one seems pretty decent:
http://www.hsbc.ca/public/canada/personal/calculators/en/howmuchcanIafford_popup.html

You would be in a better position to fill it out, but it looks like a $200k mortgage would be about your maximum.

If you've never owned a home, please, please, PLEASE, do not underestimate how much it costs to buy a home (i.e. closing costs - legal fees, title insurance, paying accumulated property taxes, administration costs for switching utilities to your name, etc.) nor how much it costs to own a home.

I've seen too many young people or immigrants who don't properly educate themselves and it is a shock to go from an apartment where there aren't a lot of additional costs to buy a house (e.g. utilities, transfer tax, GST, property taxes, appliances/window coverings/lights if they aren't included, even down to changing the locks). Just because you don't have to pay the agent to buy your new house doesn't mean that you don't have thousands in expenses waiting for you.

[Bullseye]

As others have said, you can't afford a $350k home with a $260k mortgage, you just won't qualify for it with a $50K income. Not with conventional lenders, anyways. They won't include your part time income, either.

You could afford a cheaper home, you could get an older townhome in Mississauga for $250k and probably qualify for that.

On the bright side, interest rates are poised to be heading lower, and I think it's fairly safe to say that the big gains in home prices we've seen in recent years is over. The market has slowed, and I wouldn't count on prices dropping (though it's possible), but you can be reasonably certain that you won't be chasing a fast moving target like people have been up until recently. SO no rush, if you want the $350k house, and you are reasonably comfortable in the apartment, keep saving till you have a bigger downpayment, and/or your income goes up.

[ARK]

Thanks again guys for your valuable suggestions, I am more inclined towards saving now for a bigger downpayment atleast 60k which will take atleast 2 years to accomplish and than buy a decent home which I can afford.

Also hopefully after two years when my kids grow old then my wife will start working, which will help me choosing a better home and easily affording the mortgage payment

[Bullseye]

I'm curious about your $2500 monthly expense figure...adding up what you've provided, that only leaves $200/month for everything else. You pay for things like phone, cable, diapers, entertainment, etc with $200?

[ARK]

I'm curious about your $2500 monthly expense figure...adding up what you've provided, that only leaves $200/month for everything else. You pay for things like phone, cable, diapers, entertainment, etc with $200?

Phone & Cable are included in monthly rent of $1200, The actual rent is $1125 plus these utilities

Diaper and other stuff are included in the food expenses. The acutal food expense per month is approx $600 but I put $800 becuase of these extra expenses. For the entertainment and gifts, I use approx 200 per month, I hope it makes more sense now

[djjosee]

Wow, you can save $1,500 a month with three kids (at those ages) and a stay at home wife? Impressive!

Good luck on whatever you decide.

[USP]

I'm surprised that no one has mentioned it yet but have you considered buying a home with a rental suite to help out with your mortgage payments? That's the route I went and my rental income from the basement suite covers more than half my mortgage payment every month.

Some will say it's a pain in the a$$ to have a renter in your house but to me it makes sense, especially when you're just starting out. Let someone else help pay your mortgage (just as you, as a renter, have been doing for the owner of your apartment ;) ). Another plus to having a renter is writing off a good chunk of your homeowner expenses at tax time - mortgage interest, property tax, utilities, repairs, etc.

If you're able to save $1500 a month already (with a stay-at-home wife and 3 kids) you're doing great. That's VERY impressive, in my opinion, and I think it demonstrates that you're really responsible with your money and that you'd be well suited to owning your own home.

Like others have already said, if you plan to buy just make sure you're aware of all the hidden costs of purchasing a home (lawyers fees, inspection, appraisal, property transfer taxes, insurance, to name just a few). They can very quickly add up to thousands of dollars on top of the purchase price of a home.

[vkykam]

I think you're in a Catch-22.

On one hand, if you save, you can put more towards a down, but the flip side is that you're hedging that the market won't go up.

Based on your current income, the best you can do is a $200k mortgage. It'll help if you save, but a larger down doesn't mean you can borrow more against a house, so it's a dollar-for-dollar scenario and whether you think you can save faster than the appreciation of a $200k house.

Keep in mind as well that a mortgage payment, there are principal involved, so it's not truly a full expense, but just the interest portion.

As for the market, while there are those who thinks the market will retreat, my question is based on what grounds? Just because it has a long up run doesn't mean it'll go down. That alone isn't reason enough. My personal view is that so long as there is an increase in population (and there is) and people's income level doesn't drop (read -> recession), there is no reason for the market to go down. The reality is people take mortgages based on what they can borrow, and income is a direct influence. If people aren't making less, and there are more people coming to the city (meaning demand higher than supply), then what reason is there that the market will retreat? There's surely no shortage of buyers out there at this point.

The better question is, IF you were to buy, and you can only afford a $200k mortgage, will you be satisfied with what you'll get? It's a lifestyle choice; what you have now is relative comfort compared to if you bought $200k much further out of the city. Is the sacrifice worth it? With 3 kids, the small $200k condo is not likely an option, unless you want to look at less than ideal areas of the city.

Take my opinions with a grain of salt. I speak biased, since I'm a part-time real estate and mortgage agent. But I'd love to hear from those that think otherwise if they can come up with a concrete reason.

Victor

[rfdrfd]

Looks like lots of good advice posted already, so I will say something different.

Have you planned for the unthinkable ?

- if you get laid off
- if you get into a car accident, cannot work for months
- if you get hurt at work

My coworker (sitting just 2 cubicles behind me) got laid off 6 months ago. His wife also stopped working after the 2nd kid was born (to save on daycare fees). Both kids are young, 2 and 4 ? So now, he is out of a job, no income coming in.

I used to really believe in saving daycare fees if you have more than 1 kid. But after seeing this situation, I totally believe in BOTH parents working, JUST incase.

And I know at least 10 ppl in my company that is on leave due to a car accident. Many have BAD backpains. They are obviously on LTD, not getting 100% income.

Even if you don't get laid off, car accidents happen every single minute on the road. Hence, I hope you have planned for that before you jump into more debt in getting a mortgage, with only ONE income coming in, I worry for your situation.

Thanx :o) Best of wishes.