A renewed dedication to picking pennies off the ground
March 19, 2008
I love reading instead of doing, so I am currently reading Homegirl: The Single Woman’s Guide to Buying Real Estate in Canada. It’s a quick read and if only I wasn’t trying keep up with my current events and also read All the Good Ones Aren’t Taken, I might have even completed the book by now.
So far the book is eye-opening (all those costs associated with finding and buying a house!) and depressing: I was hoping to get a new three bedroom townhouse without having to move too far away but it seems like the area I’m looking at might be out of my price-range, unless I’m willing to buy something that isn’t brand new, which is definitely an option now. After all, many older homes have my required en suite bath and walk-in closet.
(Of course I haven’t actually sat down with a mortgage broker and received the magic amount that I can spend, but what I’ve learned from the book is:
- no more than 32% of your gross income should be spent on monthly housing expenses
- your total monthly debt load (all the other things that you pay for monthly, including tv, phone, car loans, credit cards) should be no more than 40% of your gross income (and of course 32% of that maximum is eaten up by your mortgage)
So, working backwards, I can take 32% of my gross annual salary, divide by 12 and get the maximum amount I should spend each month on the mortgage, and also figure out how much I have left over to spend on my other bills. Of course I realize this is all an ideal situation and they can’t tell me what to do if I want to increase that amount to 50% or something, but I like following rules: it’s result of the spontaneous mutation in my genetic code, that and the aversion to cooking and my general lack of ambition.)
There’s another depressingly handy chart that tells you how much you can comfortably afford to spend on a house, depending on how much of a down payment you have. Of course the larger your down payment the better off you are. But honestly: who has twenty percent of the cost of a house to put down? Ok, fine, I was sort of hoping I would but this money growing business is slow (I see now what motivates those counterfeiters).
I like to put pressure on myself and I feel that since I’ve been able to live at home for so long and what I pay in rent is negligible, I should have been able to save up my 20% by now (if only didn’t have an aversion to packing a lunch and a propensity to eat out at least once a day). I’m trying not to be swayed into continuing to save for another 10 years until I have my 20%, but the part of me that balks at having to pay for the CMHC insurance as a “penalty” for not having my 20% is trying to make its voice heard.
re: walk-in closet
We rent what is marketed as a three bedroom house, the third bedroom is affectionately called a 'box room' because it is tiny. It would possibly work for a baby or small child. It is too small to even be used as an office. So my wife and I use it as a dressing room. All our clothes, hair stuff, make-up, laundry basket and big mirror live in that room. It is right next to our bedroom so very easy to use. It also means that our bedroom is uncluttered and a very peaceful, relaxing place to be.
So don't let the room labels from the estate agent's details tell you what you can or cannot use each room for. Keep an open mind and remember that it'll be your house and you can do what you want with it.
And our other 'bedroom' is used as a library/office [my wife works from home]/guest room [we have a wonderful king sized air matresses that just fits]/exercise room.
We know that our income isn't enough to buy in our current city [houses on our street tend to go for £350,000 and the most we can get in mortgage land is about £125,000 with a 10% deposit which we're saving for now]. Saving money takes so long but it is definitely worth it. Being out of debt and having that cushion takes a lot of worry out of life. Like when I got sick last year, I haven't been able to work since October, but we've been okay thanks to savings and being debt free.
Good luck with the whole process. I know each country works differently, so I shan't offer advice on buying!
Wait, your gross income? That actually allows a lot of flexibility given that some people don't even take home more than 50% of their gross income. So 32% of your gross income could become 60% of your takehome pay. And that's a lot.
Anyway, I'm sure I'll feel your pain on this soon as we are also hoping to buy someday in the not-too-distant future. Good luck!
Home buying is so expensive! We barely made our 25% downpayment when we bought our house, and we cashed in a ton of RRSPs to do it. I hate the CMHC "tax", we had about 20 % down at the time and realized the CMHC fees would actually equal the extra 5% we needed – needless to say we scrounged up the money fast – from a relative just so we wouldn't have to insure the mortgage.
The major plus side of buying as soon as you can afford it? Our home was purchased for 229, 000$ and is now over $750, 000 (in four years time) thanks to the ridiculous Edmonton markets.