This & That: Buying a Home Edition

P Wrote:  Hey Gail, I'm a huge fan of your work. I've watched Til Debt Do Us Part religiously, I love all the tips and ideas you give in the show, and I bought your book Debt Free Forever. I worked through the book and found out that I was overspending by $93 every month!! (I know it's nowhere near a lot of people on the show, but I'm 24 years old, just finished school and have a big student debt and credit card debt to pay down.

In the last 4 months, I managed to completely pay off my Visa from $2500; the LAST payment was made last night to bring it to 0!!!

I took your advice and got a part time job to make some extra money. I was lucky enough to find a job that I love, at Chapters, so it makes it much more pleasing! I just did the calculations and if I continue to have shifts the way I have, I will be able to pay $800/month toward my student loan, and be completely debt free in 1 year and 8 months!! My loan is $14,673.99 as of right now. I can't believe there's an end in sight I'm extremely pleased with myself!!

I wanted to thank you for all of your help but I also have a question. My common-law boyfriend and I are wanting to get a house in the near future and we had a meeting with a lendor yesterday who said we qualify for a $216,000 mortgage…We are hoping to get a home for around $230,000 so we need to bring our income up by $5000/yr. She suggested we take our downpayment savings ($20,000) and put it into a TFSA, and then take out a loan to make a maximum contribution to an RRSP which we haven't started yet. It makes me nervous to take out another loan just to that and pull it out, and from my information from you, is that you should never pull out your RRSP contributions…What do we do? I'm not sure where we go from here because I don't want to get out of debt just to take on more for what I consider a silly reason! I would like to save and put it in the RRSP and wait an extra year or so to get a house than to go into more debt. Help!  Thanks so much for all your inspiration and information!

Gail says:  It's perfectly fine to use RRSP money for a downpayment, assuming you put the money into the RRSP for that purpose. So don't sweat that. But as far as taking a loan for the RRSP contribution, don't. Of course your lender would suggest that. That's how lenders make money. But you need to be sure you can afford all your payments, and you're already short on income, so don't go digging yourself a deeper hole. You can't buy until you've saved your downpayment (inside or outside an RRSP).

S Wrote:  My husband and I have been watching your show for a few years. In Sept 2008, we faced 82K of debt to approx 14 creditors (4 credit cards, 2 student loans, 1 furniture, 1 car, 1 dept store card, 2 LOC, wedding, family)…you get the picture.

So we set a plan in action and almost 3 yrs now, we now only have the car and 1st loan for a total of 17K. I also bought 2 of your books, the Debt Free Forever book and the retirement one. I actually wish that we had purchased it sooner because there's even more info in the book! Now my question! We want to buy a condo but because we haven't saved anything (I know what you're going to say about that & you are correct, we had to use credit for emergencies but we don't have anything now!) – we don't have 12K for the downpayment.

The mortgage pmts would be 1010$/mth, condo fees 340$, property taxes 145$. The total mortgage amount is 232K (we're very conservative). The mortgage rate is 2.2% variable 1 yr closed. My husband makes 61K and I make 53K. Net, we make 78K. Our only remaining debt is the car and the 1st loan.

So here's the dilemma. We want to put the mortgage in one of our names and the other take a LOC at 4% for the 12K downpayment. The pro is that I get to leave the dreaded rental! The condo meets all our expectations for our first home purchase. The con is that my husband will likely be transferred for work again in 2 maybe 3 yrs. We live in Edmonton so real estate is much more expensive here than out East. But I hate the thought of staying in our current rental

My husband said that he's learned a lot from you and he thinks that we should save up for the downpayment and save the 4% interest. I know that we're getting a really good deal (5-8K less than the paid price). BTW, this is the same guy that 3 yrs ago was paying 50$ a month in bank fees, he's come a very long way!!! Can you PLEASE PRETTY PLEASE answer this question? It's driving me crazy!

Gail says:  Sorry, m'love, you're probably not going to like what I have to say. Since you know you'll likely be moving in 2-3 years, you should NOT be buying anything. Home ownership is for people who can put down roots. You're still wondering around, so stop trying to have both a mobile life and a stable one. Enjoy the flexibility and freedom on your current life. Look forward to the next posting adventure without having to worry about selling a home, or how you'll manage to continue to carry it if you can't sell right away. If you don't like where you're living, find a better place to live. Buying would be a dumb move because in a few years you'll have to sell again, and pay commissions and other costs.

S Wrote:  I'm not sure we can afford to buy a house. I've followed you religiously and we've even used your spreadsheet to crunch the numbers. I'm wondering if you have a moment if you would consider offering your expert opinion.  I'm making the transition from former student to new professional.  We have a 60 k downpayment so we can technically afford to put 20% down on a 300k house. Luckily we are in Manitoba so the market has not gone hog wild the way it has in other large cities.  We also have about 17k outside of that downpayment to cover closing costs and moving costs which I'm guessing would be somewhere around 10K? Is that a good guesstimate?  Leaving us with about 5-7 k to have as emergency fund.  In the actual budget we've put in all predicted expenses and have no debt (thank goodness) so we are able to put aside 4% of the value of the home into a maintenance account by putting aside $1000 each month for a total of $12,000 annually.  We also have $550 a month going into long term savings (which will mean we still put 10% gross into long term savings because I also contribute to a pension plan at work) and 1/15 of our home buyers plan repayment at $235 a month.  We also have $50/month going into emergency fund (not a lot but we may be able to shimmy the numbers from things like vacation fund–fund to see family in Ontario–, etc).  At the moment we don't have any insurance outside of our work LTD's but that is on the list of to-do's! The bank of course said we were eligible to borrow up to 600 k. I'm conservative in my planning but I wonder if I'm being so conservative that I'm afraid to take the next step in life? We are both turning 34 this summer, and this will be our first home. We plan on living here for at least five years. The market seems to be doing very well in Winnipeg, growing steadily. I worry if we don't do something we'll lose a year we could have been building equity. Do you think we can afford this home when we have factored in all of the saving-just-in-case criteria and we make a combined income of app $120/k a year? The house is close enough that I can walk to work (weather permitting of course!)  I grew up without much of anything (single mother, low income) so to be looking at a 300k house is very daunting as I always feel like I could go back to nothing some day and want to be prepared for the worst. Any thoughts you have would be very much appreciated, as always thanks for your time and I hope you are having a great weekend.  Incidentally, I was in Cobourg visiting my in-laws a few weeks ago and went into a store that was selling lavender sprays for your sheets and I mentioned you to the girl behind the counter said you've been in there!

Gail says:  Thanks for the detail. It helps. I think you're doing fine. You've planned well an you've got all your ducks in a row. And you're being very sensible to go with 20% down and not over-extend yourself on a mortgage. GO DO IT! As for the home maintenance, trim back a little, to 2% (I'm about to do a blog on this) and use the difference to rebuild your emergency fund. I hope you're having some fun too! Best wishes to you and your partner if finding your home together.

A Wrote:  I love your show and watch the re-runs to catch the good advice I missed the first time around. I have managed to catch Princess on occasion as well, but find I don't have any patience with the younger, "I want everything now" set. God bless you for taking them to task and making them see reality.

I have a couple of questions, and have searched through your site but couldn't find anything exactly like this. Here goes….

We're planning on buying a home very soon. When it comes to paying a mortgage, I know that it is advantageous to accelerate payments. I'm considering weekly payments, but read somewhere that such action was discouraged because, "there is no appreciable difference in increasing from bi-weekly to weekly." Is this statement true? Why or why not?

My second question is a follow-up to one from your Q&A section. You recommended that a person make their RRSP contribution at the beginning of the year (i.e. in March). A banker once recommended that I spread my payments out over the course of the year to take advantage of the varying purchase price as the market fluctuates. Is this really prudent or simply a good sales job by the banker?

Gail Says:  There is a small advantage to paying weekly over paying weekly over paying bi-weekly. Go to an online calculator like this one at the Royal Bank, put in your numbers and see for yourself. Change the frequency to see how the payment amount changes.

Your banker and I are actually talking about two different things. I am trying to encourage people to make their contributions earlier, instead of waiting for the deadline. Your banker is encouraging clients to take advantage of dollar cost averaging by investing monthly. It is a prudent strategy, not just a good sales job.

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