Real Estate

Buying for the first time...

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  • Jan 3rd, 2022 5:09 am
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan

Buying for the first time...

Hey folks,

We are getting to a point of wanting to buy a home - maybe towards the end of this year or early next year. This would be the first property for our family.

Our budget situation is a bit complicated...
Gross salary is roughly 150k. I'm the sole breadwinner for the next few years. The plan is for my wife to go back to work part time and she would probably bring in 50k/yr (full time would be 120k-150k but we'd like to avoid that).
With all our expenses we are in the red by roughly 2k every month (rent is 2.7k). I'm only counting my salary less all expenses here.

By now you're probably thinking that we're crazy for even thinking about a purchase but it's not all bad. Before our two kids were born we accumulated some assets and they've done well. The problem is I would like to cash in as little as possible...
RRSPs: 1.1M
LIRAs (can't access those): 300k
TFSAs: 250k
Non-registered: 200k (No issues with cashing this in, we'll have to pay some taxes but very little).
Emergency cash: 50k

We would be eligible for the first time home buyers plan and I was also thinking to pull some money out of wife's RRSP (maybe 50k this year and 50k next year) to pad the down payment.

I'm ok to continue to be cash flow negative for the next few years but obviously don't want to overstretch ourselves. But how big of a mortgage would we be able to get?

Ideally would like to get a detached in Mississauga somewhere between 427 and Hurontario, closer to the QEW. Not looking for a mansion, typical 3 bed/3bath with a nice backyard.

Any thoughts/suggestions on our situation and how to best prepare for the purchase? Main questions are financial but would welcome advice on other fronts as well.

Thanks in advance!
19 replies
Deal Addict
Feb 19, 2019
1777 posts
2721 upvotes
Stouffville ON
As far as affordability is concerned you will be able to qualify for something between $1.1 to $1.3M just with your tfsa, non registered, and HBP.
Drawing some rrsp from the spouse if she has no other income in the year is probably an idea worth considering although I wouldn't suggest drawing large amounts to avoid large tax bill, I would probably consider drawing rrsp on top of the HBP if other amounts were not enough to buy or cover the type of house you have your sights on.

The amount you qualify for may be different than what you are comfortable spending.
Full Time and Full Service Realtor
Sr. Member
Mar 14, 2018
946 posts
902 upvotes
GTA
Typically the max mortgage given is 5x the salary. In your case with both working you would be able to borrow 1M. With current variable rates this would probably be about 3.5k per month on mortgage. Let's assume with your wife back to work she brings about 3k after tax per month. Since you are paying 2.7k on rent, I think your wife's additional income can offset the difference (~0.8k) plus the 2k negative cash flow you have.

So the question becomes how much of your savings will make up the downpayment and hence the price of the home. If I were you I would tap into HBP RRSP and your registered funds to spend 270k toward the downpayment and closing costs. So you are looking at 1.2~1.25M property with mortgage amount of 1M max.

Having said owning a house definitely increases your monthly/annual expenditure so you'd have to budget for that. But since you have a large amount of savings I think you would be able to handle any surprise expenses.
Deal Addict
Mar 30, 2017
1185 posts
936 upvotes
GVA
Saniokca wrote: Hey folks,

We are getting to a point of wanting to buy a home - maybe towards the end of this year or early next year. This would be the first property for our family.

Our budget situation is a bit complicated...
Gross salary is roughly 150k. I'm the sole breadwinner for the next few years. The plan is for my wife to go back to work part time and she would probably bring in 50k/yr (full time would be 120k-150k but we'd like to avoid that).
With all our expenses we are in the red by roughly 2k every month (rent is 2.7k). I'm only counting my salary less all expenses here.

By now you're probably thinking that we're crazy for even thinking about a purchase but it's not all bad. Before our two kids were born we accumulated some assets and they've done well. The problem is I would like to cash in as little as possible...
RRSPs: 1.1M
LIRAs (can't access those): 300k
TFSAs: 250k
Non-registered: 200k (No issues with cashing this in, we'll have to pay some taxes but very little).
Emergency cash: 50k

We would be eligible for the first time home buyers plan and I was also thinking to pull some money out of wife's RRSP (maybe 50k this year and 50k next year) to pad the down payment.

I'm ok to continue to be cash flow negative for the next few years but obviously don't want to overstretch ourselves. But how big of a mortgage would we be able to get?

Ideally would like to get a detached in Mississauga somewhere between 427 and Hurontario, closer to the QEW. Not looking for a mansion, typical 3 bed/3bath with a nice backyard.

Any thoughts/suggestions on our situation and how to best prepare for the purchase? Main questions are financial but would welcome advice on other fronts as well.

Thanks in advance!
1) Respect for the large RRSP & TFSA reserve
2) take advantage of wife's low tax rate right now and take out some RRSP if it can attribute to her as her income.
3) so, TFSA 250k+200k is all you have for down payment without touching RRSP now. You will get a big hit for taking out RRSP in single year. And for wife to take RRSP out tax efficiently will take several years and only if available, about 120k/yr.

so now 450k downpayment, that doesnt get you very far.
150k income can possibly get your about 800k-1M mortgage, ask a mortgage broker.

I'd max out mortgage of what i can afford for the largest house. no way youill want to move if you later find the house to be too small.
It will be way easier when wife works part time down the road.
or can choose to wait a year or 2 for wife to take out rrsp for less mortgage payment or even larger house with higher downpayment.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
Deal Addict
Jan 13, 2014
2431 posts
1483 upvotes
Calgary
Saniokca wrote: Hey folks,

We are getting to a point of wanting to buy a home - maybe towards the end of this year or early next year. This would be the first property for our family.

Our budget situation is a bit complicated...
Gross salary is roughly 150k. I'm the sole breadwinner for the next few years. The plan is for my wife to go back to work part time and she would probably bring in 50k/yr (full time would be 120k-150k but we'd like to avoid that).
With all our expenses we are in the red by roughly 2k every month (rent is 2.7k). I'm only counting my salary less all expenses here.

By now you're probably thinking that we're crazy for even thinking about a purchase but it's not all bad. Before our two kids were born we accumulated some assets and they've done well. The problem is I would like to cash in as little as possible...
RRSPs: 1.1M
LIRAs (can't access those): 300k
TFSAs: 250k
Non-registered: 200k (No issues with cashing this in, we'll have to pay some taxes but very little).
Emergency cash: 50k

We would be eligible for the first time home buyers plan and I was also thinking to pull some money out of wife's RRSP (maybe 50k this year and 50k next year) to pad the down payment.

I'm ok to continue to be cash flow negative for the next few years but obviously don't want to overstretch ourselves. But how big of a mortgage would we be able to get?

Ideally would like to get a detached in Mississauga somewhere between 427 and Hurontario, closer to the QEW. Not looking for a mansion, typical 3 bed/3bath with a nice backyard.

Any thoughts/suggestions on our situation and how to best prepare for the purchase? Main questions are financial but would welcome advice on other fronts as well.

Thanks in advance!
Before buying i would rather sit down and work out a budget and see why is it in the red. I understand your wife may work down the road, but still thats a maybe at the moment.
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
masarwar wrote: Before buying i would rather sit down and work out a budget and see why is it in the red. I understand your wife may work down the road, but still thats a maybe at the moment.
Thanks for the comment. The red is a conscious decision. We worked pretty hard to bring the savings up so that when we had kids we could take the foot off the pedal and not stress about finances. I actually took a few years off work as pat leaves and the red there was more like 7-8k/month. The plan is that she will go back to work once our youngest goes to JK, or maybe a year after that (2-3 years from now).

For context, we're both around 40.
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
senasena wrote: As far as affordability is concerned you will be able to qualify for something between $1.1 to $1.3M just with your tfsa, non registered, and HBP.
Drawing some rrsp from the spouse if she has no other income in the year is probably an idea worth considering although I wouldn't suggest drawing large amounts to avoid large tax bill, I would probably consider drawing rrsp on top of the HBP if other amounts were not enough to buy or cover the type of house you have your sights on.

The amount you qualify for may be different than what you are comfortable spending.
Hmm. Really don't want to touch the TFSA but maybe the answer is cash in a part of it and keep withdrawing 50k from RRSP while my wife's income is low to replenish them as fast as possible.
Sr. Member
Dec 23, 2012
504 posts
499 upvotes
RICHMOND HILL
you can probably qualify for quite a bit, some banks (I know scotia at least) can qualify you based on assets. my rough guess would be you could qualify for at least 1.5m, but I would check with a broker that does these often. I recently qualified for low 7 figures with the same salary as you and about half the assets, although they were mostly in non-registered accounts.
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
Pulled out 60k from wife's RRSP (aka 42k after withholding). This is what our down payment could look like:
Non-registered: 227k
TFSAs: 277k
FTHB: 70k
FHSA: 40k (if that happens)
2022 RRSP withdrawal: 42k
Total: 656K

I was told by a broker that I can get 650k in mortgage so total budget all is about 1.3M. Can't buy much with that lol. Based on some comments above seems like I should consult another broker??

P.S. On the bright side, made over 400k in returns this year and 500k over 2019-2020. Money is becoming worthless.
Jr. Member
Oct 7, 2019
189 posts
190 upvotes
Saniokca wrote: Pulled out 60k from wife's RRSP (aka 42k after withholding). This is what our down payment could look like:
Non-registered: 227k
TFSAs: 277k
FTHB: 70k
FHSA: 40k (if that happens)
2022 RRSP withdrawal: 42k
Total: 656K

I was told by a broker that I can get 650k in mortgage so total budget all is about 1.3M. Can't buy much with that lol. Based on some comments above seems like I should consult another broker??

P.S. On the bright side, made over 400k in returns this year and 500k over 2019-2020. Money is becoming worthless.
I mean with your income & portfolio level you should already have access to a better channel. It has been thrown around here that banks would give you mortgage amounts to your portfolio value. Big banks will compete to give you 5-6 x income based on your income alone provided no debt/loan payment with 20% down.
Member
Dec 14, 2021
428 posts
1044 upvotes
Money isn't worthless...liquid assets/cash is king, as you can leverage the heck out of it.. It's just worthless to those who can't put a solid lien on it

With your situation, which is similar to my own (aka garbage t-slip income, but high liquid assets/cap gains), you don't need to play the real estate game as far as ownership via a traditional lender. Putting your money to work intelligently will net you as much in cash in -24 months as you would be able to borrow...or there is other, slightly more convoluted, methods to accessing funds for more than 'traditional bank maths' would normally allow.

Sidenote; if you are not in real estate already the past 20 months, now is probably not a great time to get in...what with the end of qe by March and the start of interest rate hikes shortly thereafter, returns are not likely to be too steller past q1, maybe q2 thus year. If you know where rates are going (and we do), there is easy money on the table...just like the last 2 years in real estate.

Long story short: the bank, bag holders, whoever...they want you indebted, and not in control of your money...they wanted it tied up, and you tied down. The value of 10 million in cash is absolutely zero to a bank.

But good news...you don't need them, it sounds like you just need to find a decent financial advisor...and your first questions to him/her should be "Are you younger than me? Do you have more money then me? And can I see your personal return s the past 5 years?" If the answer is yes to all three, then 99 percent thats the right person...imo
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
StatikIEV wrote: Money isn't worthless...liquid assets/cash is king, as you can leverage the heck out of it.. It's just worthless to those who can't put a solid lien on it

With your situation, which is similar to my own (aka garbage t-slip income, but high liquid assets/cap gains), you don't need to play the real estate game as far as ownership via a traditional lender. Putting your money to work intelligently will net you as much in cash in -24 months as you would be able to borrow...or there is other, slightly more convoluted, methods to accessing funds for more than 'traditional bank maths' would normally allow.

Sidenote; if you are not in real estate already the past 20 months, now is probably not a great time to get in...what with the end of qe by March and the start of interest rate hikes shortly thereafter, returns are not likely to be too steller past q1, maybe q2 thus year. If you know where rates are going (and we do), there is easy money on the table...just like the last 2 years in real estate.

Long story short: the bank, bag holders, whoever...they want you indebted, and not in control of your money...they wanted it tied up, and you tied down. The value of 10 million in cash is absolutely zero to a bank.

But good news...you don't need them, it sounds like you just need to find a decent financial advisor...and your first questions to him/her should be "Are you younger than me? Do you have more money then me? And can I see your personal return s the past 5 years?" If the answer is yes to all three, then 99 percent thats the right person...imo
I am doing ok in terms of risk/return (pension actuary by trade) and since Jan 1, 2013 our average return is 18.7%/yr... Also my feeling is that rates will go up so we do hold some assets that should benefit (e.g. preferred resets). Having said that, it would be nice to have a place of our own at some point in the next couple of years. Detached in Mississauga would fit the bill: small house, big backyard.

P.S. I agree with a lot of what you're saying but behavioral economics took over: things are least rational at precisely the wrong time for me :).
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
tosave wrote: I mean with your income & portfolio level you should already have access to a better channel. It has been thrown around here that banks would give you mortgage amounts to your portfolio value. Big banks will compete to give you 5-6 x income based on your income alone provided no debt/loan payment with 20% down.
Yep - will have to look into this with another broker/bank. When it comes to mortgages I have almost zero knowledge of how lenders look at things.
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
Saniokca wrote:
With all our expenses we are in the red by roughly 2k every month (rent is 2.7k)... I'm ok to continue to be cash flow negative for the next few years
but obviously don't want to overstretch ourselves.
To which of those savings vehicles is the tax efficency offset of your negative balance being redirected?
I'm the sole breadwinner for the next few years. The plan is for my wife to go back to work part time and she would probably bring in 50k/yr


The problem is I would like to cash in as little as possible...
RRSPs: 1.1M
LIRAs (can't access those): 300k
TFSAs: 250k
Non-registered: 200k (No issues with cashing this in, we'll have to pay some taxes but very little).
Emergency cash: 50k
Well, if you want to buy you will have to accept the fact that while you'd like to cash in as little as possible you'd be redirecting it from liquid assets to an illiquid asset which also diverts your rent expense into that asset transfer.

While I gather you may be an actuary, if you haven't done so, you should want to speak with a financial advisor about the inefficiency of a large RRSP balance once retirement is around the corner. My propensity would be to take advantage of your spouse's reduced income while you can and divert as much of their RRSP as possible into the downpayment and if possible also into a 2nd/3rd year mortgage prepayment. Even if it means using up a little of your current TFSA to get the appropriate downpayment, which can be replenished by your spouse's subsequent years RRSP drawdown.

It may be that the 24k or so you're in the red every year is best utilized for efficiency by redirecting same against your spouse's RRSP as much as possible until they return to full income capacity and even divert any payback into CEFIs which you haven't mentioned.

I gather though that you're unsure if you really want to trade liquid assets for real estate.
[OP]
Member
Sep 23, 2011
432 posts
594 upvotes
Vaughan
licenced wrote: To which of those savings vehicles is the tax efficency offset of your negative balance being redirected?
In the past few years bonuses and the cash portion from DB pension payout pretty much took care of the deficit.
licenced wrote: Well, if you want to buy you will have to accept the fact that while you'd like to cash in as little as possible you'd be redirecting it from liquid assets to an illiquid asset which also diverts your rent expense into that asset transfer.
Yes pretty much.
licenced wrote: While I gather you may be an actuary, if you haven't done so, you should want to speak with a financial advisor about the inefficiency of a large RRSP balance once retirement is around the corner. My propensity would be to take advantage of your spouse's reduced income while you can and divert as much of their RRSP as possible into the downpayment and if possible also into a 2nd/3rd year mortgage prepayment. Even if it means using up a little of your current TFSA to get the appropriate downpayment, which can be replenished by your spouse's subsequent years RRSP drawdown.

It may be that the 24k or so you're in the red every year is best utilized for efficiency by redirecting same against your spouse's RRSP as much as possible until they return to full income capacity and even divert any payback into CEFIs which you haven't mentioned.
Yes - that's why we started cashing in wife's RRSP this year. The "plan" is to do around 60k/year. If we buy something this year, it would used to pad the downpayment. After the purchase we would keep drawing to finance life/renos/etc.
By CEFIs do you mean RESPs? We put 2.5k/kid every year.
One of the goals for 2022 is to get the POAs/Wills done as well as talk to a financial advisor (precisely for tax efficiency purposes).
licenced wrote: I gather though that you're unsure if you really want to trade liquid assets for real estate.
At this point I'm ok to trade, just want to find the best way.
Sr. Member
Sep 13, 2007
739 posts
330 upvotes
Toronto
Saniokca wrote: Yep - will have to look into this with another broker/bank. When it comes to mortgages I have almost zero knowledge of how lenders look at things.
You got good finances/NW outside of RE.
And that my wife and I should make a more conscious effort to save any money we can.
Balancing your portfolio isn't a bad idea.
If you wait longer, then your portfolio maybe more of an asset at that point.
You brought up a good point, about the temptation to time the market.
I also feel the same way, about potential headwinds in 2022.

It's a big emotional decision.
The saying is anytime you can get into the market, you should do it.
But it's more of a personal choice, whether you and your wife wants to buy a place right now.
You two are lucky to have that choice.
Member
Nov 21, 2018
301 posts
271 upvotes
tosave wrote: I mean with your income & portfolio level you should already have access to a better channel. It has been thrown around here that banks would give you mortgage amounts to your portfolio value. Big banks will compete to give you 5-6 x income based on your income alone provided no debt/loan payment with 20% down.
Curious to know how that works. I always thought banks only qualify you based on income factors. Are you saying that if lets say I have 500k in investment the banks will qualify me for a loan of 500k?
Jr. Member
Oct 7, 2019
189 posts
190 upvotes
Nexus313 wrote: Curious to know how that works. I always thought banks only qualify you based on income factors. Are you saying that if lets say I have 500k in investment the banks will qualify me for a loan of 500k?
I don’t have the details but the point is if you have 1.5M investment, making 150k a year and your broker come back with 650k mortgage at best then your broker or whoever you’re dealing with most likely doesn’t know what he is doing or doesn’t like doing business with you.
Newbie
Mar 27, 2021
40 posts
19 upvotes
tosave wrote: I don’t have the details but the point is if you have 1.5M investment, making 150k a year and your broker come back with 650k mortgage at best then your broker or whoever you’re dealing with most likely doesn’t know what he is doing or doesn’t like doing business with you.
Do you know of any specific financial institutions that provide mortgages based on investment portfolio value?
Member
Jul 2, 2018
309 posts
299 upvotes
Nexus313 wrote: Curious to know how that works. I always thought banks only qualify you based on income factors. Are you saying that if lets say I have 500k in investment the banks will qualify me for a loan of 500k?
Rater99 wrote: Do you know of any specific financial institutions that provide mortgages based on investment portfolio value?
There are banks that will do this, just connect with an investor focused mortgage agent who is experienced with this and they will be able to find the right lender for you.
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