Planning For Homebuying

I will admit that I'm not always the most patient person. When I get something in my head, I want it now. Not in a year, not in three months, NOW.

I have always had a hate-hate relationship with renting. In my perspective, there is nothing at all good about it. Not even the whole "you don't have to pay for repairs" thing, because landlords then have the opportunity to make you wait for the repair (example - when we waited for three weeks without a washing machine) because they are not affected by the situation.

So, no, I will never even consider being a lifelong renter.

With our neighbours being such assholes all the time, it feels like even more incentive to work hard and build up our funding to purchase a home.

Now that I have a REAL job, home ownership can become a reality for us.

Being the most impatient person in the world, I have a hard time waiting, and have had a lot of fun looking at the MLS listings as of late. But, I know I need to wait in order to make the right move at the right time.

So, based on careful calculations, analysis, and reading a LOT of articles, we've decided to start looking in:

January/February

This is based on a number of factors, that I would love to get down on paper (or, virtual paper, as you may have it):

The Prices

Some people seem to think that the housing prices in the areas surrounding Vancouver are good, it's just Vancouver city that has soaring home prices.

This is not the case. The prices in the surrounding cities are, admittedly, much lower than those of Vancouver, but still higher than almost everywhere else in the province.

The Vancouver housing market greatly affects what goes on in the surrounding cities, so when economists forecast a 10% decrease in prices in Vancouver and Toronto, I fully expect that decrease to trickle out to the 'burbs (where we want to buy).

That forecast was said to happen over the course of a year since May, and by January or February, we are sure that the 10% decrease will be well on it's way.

The Market

The Canadian housing market has finally turned into a buyers market, and it will likely remain that way for the next few months. With prices slipping, and new mortgage rules (the maximum is 25 years), this is turning into good news for the likes of J and I.

The mortgage rules will discourage a lot of buyers from purchasing, because this makes it a little less affordable. We couldn't imagine being locked into a mortgage for 30 years anyway, so we had planned to pay it off in 15-20 years. That 25 year rule is great, because there will be fewer buyers, thus giving us more power, AND we will have to pay a lot less interest than if we mortgaged for 30 years.

Bonus!

Time of the Year

Everyone knows that June, July and August are the busiest home buying months. BC is no exception to that rule, and of course that is when the prices are the highest.

Winter is slow for home buying, causing prices to decrease. Sellers are proven to take lower offers in the winter months instead of the summer months, which is great news for us.

Also, houses never have as high of a curb appeal in the winter, which will work in our favour.

Down Payment

With my new job, I will be making substantially more (30%) each month and year. We already have a pretty good chunk of change saved up for a down payment, but we would like to have 10-20% of our purchase price.

We are pretty close, but that extra few months will help a lot in being able to save some for emergencies, as well.

Rental Income

We plan to buy a house that either has a roughed-in basement suite, or that we can convert to have a basement suite.

My brother lives on his own in an apartment that he doesn't love right now, and he has expressed his interest in renting our future-suite from us. He really likes the suburb that we are looking to buy in, and January/February would be the perfect time for him because he is out of town working right now.

I don't want to rent out to people we don't know and trust, and of course we would be able to give my brother rent discounts when he is out of town on work (which he is about half of the year). He keeps his apartment while he is out of town because he gets a living out allowance and needs a place to come home to, so this would work out well.

Debt

A big reason why we are not rushing to buy now is that I still have my car loan. It's not much, but I would love to have it almost paid off by the time we purchase a home. I would have an extra $220 in my pocket each month, for maintenance and for property taxes.

I likely won't have it completely gone in January (unless some old, rich uncle that I have never met dies and leaves me with money. OR! Maybe I should respond to that Nigerian prince who is always offering me cash), but it will be reduced significantly.

 

What do you think - does this sound like a good plan? Any arguments against buying a house at this time?

76 thoughts on “Planning For Homebuying

  1. I think the changes to the mortgage rules REQUIRE a 20% down payment.

    Also having family as tenants can be the worst thing ever. If they get into bad habits that you don't like (like not paying) there will be quite a heavy burden of guilt when you try to evict them. "Common sis! I'm family!" Or your brother might be an upstanding guy and then you've got no problem.

    Reply
    1. No I don't think that is the case with down payments. You do avoid the extra insurance requirements by having at least a 20% down payment though. So I would recommend saving at least 20% if possible just to save on insurance.

      Reply
        1. I believe the minimum is 5%. The 20% requirement is on investment properties, or other properties that are not your principle place of residence.

          Reply
          1. Eddie

            You're absolutely right Cassie.
            20% minimum is only on investment properties, you could still buy a home with only 5% down.

            What's changed is the amortization period - down to 25years from 30.

  2. In the bigger picture, you want to buy as close to the bottom of the market as possible. House prices can (and will) come down at some point. If you miss this bottom, you can always catch the next one better prepared.

    Buying near the top never works. Sounds like you're still close to the bottom in BC, but don't wait much longer. (That ought to make your impatient little heart go pitter patter, right?)

    Reply
  3. We are definitely on the buy side of the debate most of the time - so good luck and enjoy those MLS listings.

    In the meantime, though, it might not be a bad idea to figure out tenant rights in your area. Where we are, if you had a broken washer for more than a couple of days that the landlord had been notified and done nothing about, your could have withheld rent, paid for repairs (or a new washer) yourself and then taken the cost out of the next month's rent, etc. when rhe AC broke in one of our rental units in May, we got the tenants put up in a hotel for a night while it was being replaced since the unit was "unconducive to quiet enjoyment" as their contract required both tenant and landlord keep it.

    In the US it depends a lot where you live, but tenants have LOTS of rights, and evicting them is HARD and EXPENSIVE. Might be good to find out now while you can still benefit from the tenant side, and so you know when you have tenants, even if it is just your brother.

    Reply
    1. Post author

      We don't live in that apartment anymore, thank god, but renting definitely doesn't get better.

      Same deal with BC - tenants have most of the rights, but the plan is to not evict my brother (haha).. he can stay in there as long as he wants until he moves on, at which point we will just convert it into a full house.

      Reply
    1. @SB - prices definitely fluctuate with season in a lot of south FL - when the snowbirds are around (winter/spring), prices are a bit higher, and inventory moves quicker. The more snowbirds in the area the more this gets exaggerated.

      Reply
  4. Sounds like a decent plan to me. It gives you plenty of time to do homework and make sure you know the ins and outs of everything. It will also give you time to adjust to saving more on your new salary before you buy! Just make sure you don't go out of whatever price range you set.

    Reply
  5. I think it looks like you're making a well-thought out plan for it so I don't see the problem.

    I'm considering buying next year when my student loans are paid off and I've saved up a bigger down payment. I'm also looking forward to the expected decrease in house prices due to all the mortgage rule changes! I'm shooting for a down-payment of 20% of my purchase price but I might only get to 15-18% which I don't feel too bad about either really lol

    Reply
  6. We've also noticed a decrease in prices lately, specifically in Vancouver so I think your time target is about right. I think we'll be looking again at about the same time and leaving the rental market forever as well!

    Reply
  7. We bought our house in December and I'm SO glad we did because the sellers were much more willing to negotiate a better price to get out of the house. We bought our house at the "bottom" too.

    Good luck!

    Reply
  8. That's cool you are so close to buying a home, and having an addition to rent out is a great idea. I can't remember the show on HGTV, but it's all about adding on to a home to get rental income.

    Reply
  9. John @ Married (with Debt)

    This sounds like a good plan because it is...a plan. Most people don't take the time to set things out on paper. These days, you need to bring more to the table when buying a home, which forces people to prepare a bit better. Good luck!

    Reply
  10. DebtKiller

    ABSOLUTELY BUY! Hands down. This shouldn't even be a debate. In fact, if you can swing it, the sooner the better. Rates continue to stand around 3.5% (depending on area, credit scores, etc.), but after the election, a lot of people seem to think rates will increase. Obviously they won't jump to the 5's or 6's overnight, but it's hard to imagine you're going to get a better rate than you will right now.

    I envy your position. I need to buy a home as well, however, I can't until the house I'm stuck in either sells or rents. :(

    Reply
  11. Winter is a great time to buy. You're right, people will be more anxious to sell, especially if they have been on the market for a while. I have never regretted buying a home. I would offer as low as possible without offending. You never know what someone is willing to take.

    Reply
  12. Look at you already thinking about renting out a portion of the house you're not even it yet. You must be reading too many PF blogs! :) I think you've got the right idea not to rush into anything until your car debt is down and conditions are right.

    Reply
    1. Post author

      LOL! Yes I may have crappy neighbors but they won't be on top of me. Or sharing walls with me. And removing those two things would be removing most of my pains :)

      Reply
  13. That's so great that you've figured all this out. We need to figure it out for our area, too....from what I can tell we'd be saving at least 50% each month if we owned instead of rented. But each area is different and requires its own research.

    Reply
  14. Asia

    I definitely think there is an appeal to renting however, I can't stand not being allowed to paint, decorate, have a garden etc. I think it's good to give you some time to watch the market and continue to save. Ultimately it will be much easier for you guys to find what you are looking for. Good luck with the hunt!

    Reply
  15. I think you are a genius. Great points. I sort of wish we had waited to get our new home built...if for no other reason than it wouldn't be so amazingly hot every time I want to check on the house. And now, for all of the reasons you named off too. Oh well, a bit too far along to stop now (our home will be done in about a month). Good luck with your patience! I have the patience of a rabid chipmunk (my husband likes to say). :-)

    Reply
  16. First, awesome that you are planning for the future :) It's so exciting!!!! Can't wait to read the posts :)
    We won't be ready to buy a house in the near future. Probably looking at 3 years from now at the minimum. We will be 25 by then. If we hold out another 2-3 years (age 27-28), we should be in a better financial situation to buy our house based on my financial projections. I really love my apartment. No noise, great maintenance, great location, awesome layout. So, I am in no rush.

    Reply
  17. We aren't lifers, but don't mind renting for the next several years. The first few years of my career could mean a lot of changes and moving, which is a major reason that we aren't looking to buy within the next five years.

    It looks like you really have thought of everything- I enjoyed reading through your list of considerations.

    Reply
  18. Financial Uproar

    Don't listen to anybody above. They're all wrong.

    I am usually pro home ownership. I own several rental houses as well as a good half of the house I currently live in. A substantial portion of my net worth is invested in real estate.

    But dear God, please don't touch any real estate, especially in the Vancouver area. Canada is in the midst of a real estate bubble that will end up rivaling the one our American cousins. Want some reasons? Sure.

    1. National home ownership rates are ~70%. Where's demand going to come from if almost everybody owns? U.S. home ownership rates peaked at ~68% in 2006 btw.

    2. Last time I looked at the numbers, Vancouver had a median home price to family income ratio of 15x. Which is the highest in the world. THE ENTIRE WORLD. In comparison, the median home price to income ratio in the U.S. is a little over 4x.

    3. Interest rates will go up at some point. You'll have to renew your mortgage after 5 years, where you'll pay more. Try to act surprised when this happens. Historical norms are mortgage rates in the 5-6% range.

    4. A 10% correction is extremely optimistic. Prices have climbed something like 350% in the last decade. I think a 35-50% price correction is much more realistic. What goes up must come down.

    5. Investing in something using 10x or 20x leverage is incredibly risky. If you put down 10% and the market falls 10%, you've lost all your money. Once you're underwater, good luck selling.

    I can go on too. Visit greaterfool (dot) com and canadabubble (dot) com for more. Run - don't walk - away from housing.

    Reply
    1. I couldn't agree more with you. You should wait a little more time to see how the market looks next year and then decide if you go with your idea. Point number 3 ( mortgage renew) is the worst and fore sure you will end up curse not only the neighbours but also the bank.

      Reply
      1. Post author

        I've identified my target date as January/February for pre-approval. We'll start looking after that, IF the market is still decent.

        There is a 10 year fixed rate for 3.99% right now.. due to family circumstances and a "special" circumstance on our end, I'm not super worried about mortgage renewal after that. We hope to have it paid off far before 25 year amortization period is up. But some of the other points are interesting and I have been researching them.

        Reply
        1. To the house-horny HGTV youth corps:

          There will be an initial drop in house prices. Subsequently, Realtors and Banks will ramp up their lies (can you expect anything else from highschool drop-out "professionals"?) claiming that it's now a "buyer's market" and that prices have bottomed.

          Some of the dumbest among you will pile in, deciding that, being a strategic, well-informed, young female professional (Mary Tyler Moore theme plays in background) the 20% drop means prices have really bottomed out.

          Then prices will drop another 20%. Your egregiously subprime 5% or 10% downpayment will disappear and you'll be house poor.

          Be patient or you will get destroyed. And if you think renter neighbours are bad, just wait til they're your tenant. Or your brother. Good luck, and consider reading http://www.greaterfool.ca some time.

          Reply
  19. Sounds like a better plan than we had 😉

    Put as much down as you can (without compromising your emergecny fund....if you believe in those) so your payment is lower and you save on interest. We put a little down (3.5%) thinking the market was at the bottom, but are now underwater and can't refi :\

    Reply
  20. Jen

    Very exciting! You seem to do a good job of planning, so I'm sure you will be just fine.
    The only suggestion I have is to ensure that you have also saved and set aside extra money for furniture, moving, minor repairs, etc. I found there were a LOT of little things to buy once we moved into a bigger place. While we could certainly have waited to buy them (and in many cases we did), it was MUCH easier to save when we were renting a smaller place and it was certainly nice to be able to buy some furniture (and a freezer, door mat, etc., etc.) not long after we moved in.

    ps - are you comfortable sharing the housing prices you expect to pay for a place?

    Reply
    1. Post author

      Moving is pretty expensive. We have the furniture we will need but we want to buy a coffee table, so we've budgeted for that.

      I have a full post ccoming your way tomorrow about what we're looking for exactly! Including prices . :)

      Reply
    1. Post author

      Since home prices are +400K in my area, saving another 10% would take another couple of years. By then, I fear that We'd have to save another 10% on top of that because prices will rise! I'm ok with mortgage insurance.

      Reply
  21. Definitely, if at all possible, save that 20%! It seems like the busiest real estate season here is Spring, but maybe that's because the weather is the nicest then (it gets a little hotter here in the Summer than up there, I believe). We got a really great deal on our house and we bought in December! I was 5 months pregnant, so we didn't want to wait until the weather was nicer. House-hunting with a new baby wouldn't go as smoothly, I'm sure! If we ever bought again, I think I'd want to do the same thing. Great plan. Good luck!

    Reply
  22. Edward Antrobus

    Another thing to remember is that they day of the week a house is listed can have an affect on the purchase price. J.$ wrote a post about it last year:

    Reply
  23. I'm pro homeownership, just so long as you do the math! You also have to factor in the costs of fixing things yourself as well as the incessant urge to fix things up.

    Reply
    1. Post author

      Oh, those costs have all been budgeted for. Luckily, with a carpenter as a partner, they won't be very high - but they will still be costs that we have to keep in mind.

      Reply
  24. Stats and debate aside, I just have to say this. Whenever you DO decide to buy your house, you're going to be SOOO much happier with your own space. From what you described before, renting is not fun for you right now. Reliving emotional stress is worth something, right?

    Reply
  25. Home ownership can be very rewarding - we love our home, and the thougth of going back to renting doesn't appeal to me at all. That said, I do worry that the Canadian market is still way high, and due for a correction. We're not in Vancouver, but housing prices across the country make me nervous. Good luck finding what you want at a price you can afford!

    Reply
  26. You're plan sounds pretty well thought out to me and I think this is definitely the right time market-wise for you to buy. I think you should get getting excited because you're well prepared to make this move and you should enjoy it!

    Reply
  27. I think now is a good time to buy a home, if you don't already have one. I'm also looking to buy a property now :smile: . I'm a big advocate of owning your own place. There's a reason why home owners on average have net worths that are many, many times that of renters. Financial variables aside, you also the get the freedom to do whatever you like to your place without anyone else' permission.

    Reply
  28. Good luck finding a home. It can be a lot more expensive to own a home rather than renting, but it's a good step to take. You can build equity and enjoy living in your own space. It took us forever to find a home we liked so don't underestimate the time to find the right home.

    Reply
  29. Very exciting. I'm a big fan of real estate - I've also been tempted to buy a house with an income suite (my wife and I own two rental properties. It's a great way to help pay for the house.

    The only thing I'd caution against is to make sure you can afford the payment without rent, so you don't end up in a bind. (Especially if you are only comfortable renting to people you know, the rental income might not be guaranteed as it severely limits the pool of renters!)

    Reply
    1. Post author

      Oh, yes. We are pretty good budgeters, and have looked at it extensively. We can definitely afford it without renters, as we are only budgeting on the basis of our day jobs and not my part-time income or any extra income.

      Reply
  30. Start the process of searching and researching. Having your car almost paid off is great. If the extra money makes a difference to afford repairs and maintenance, then your goal is pay off you car as soon as possible. Renting out the basement is a great way to reduce your risk. And if your brother is going to rent it from you, well, then, it sounds like you are set. 😉

    Reply
  31. Brian

    Personally I would not rent to a family member without a lease drawn up. I get along great with my entire family, but I wouldn't want to be the "bad guy" if one of them missed a rent payment and I had to ask for it.

    Granted I don't know your family dynamic, but I would hate for your to sour any family relationship over money (it happens amongst families more than it should).

    Reply
  32. Kyle @ YPFinances

    I love how well thought out you are on buying a house - this is so important when making such a big financial decision. I think it's a great plan to have 20% for a down payment although obviously, that's the best case scenario. Also waiting until you have less debt is great - it'll help when you try to get a loan. Good luck with the house hunting - it's my favorite part!

    Reply
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  35. Sounds like a good plan to me! We are hoping to buy in a year after paying off some student loans and saving up a down payment. :)

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  44. Eddie

    Congrats on your purchase.
    I've never rented in my life, nor is it my intention. Dislike the whole idea of paying someone's mortgage - but that's just me. I purchased my first home @ 25, and never looked back since.

    Congrats again, it's an amazing feeling and such an accomplishment!

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