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Financing, Mortgages and Insurance What options are best for you and your situation?


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Old 2006-12-11, 09:53 AM
BomberMacIsaac BomberMacIsaac is offline
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Default Mortgage income/debt ratios

I had a question for people here. As a first time home buyer hopeful, I have spent the last year or so gauging what I believe my girlfriend and I can comfortably afford. With a decent down payment, years of earning power ahead of us, and a housing market that appears to always provide a return on investment, I am tempted to push the envelope to put as much into a house as the bank will allow us to (40% income to debt ratio. 32% income to house-debt ratio). I am ok with the idea of being cash-poor/house-rich for the first few years, because I believe that in 5 years or so from now we will be thanking ourselves.

I would like to know how many other people out there have taken such an approach. Or in general, what income/debt, and income/home-debt ratios have people positioned themselves at when getting their mortgages for their new homes. Obviously many many personal factors would make this decision for someone, but just curious of some of the answers out there.

Hoping that this question is not too personal being that this is an anonymous on line message forum, however I understand people have come to know people on here, so understand if I may not get any/many replies on this… : ) Thought I would try asking none the less.

Thanks in advance for anyone willing to share.
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Old 2006-12-11, 10:03 AM
mart242 mart242 is offline
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Personnaly, I don't see the point of having a big house that's empty thinking that you may be able to fill it in the next 5 years. Job security is not guaranteed... the real estate market could go down the drain at any time and who knows, your wife and you might decide to have kids within 5 years but would have no money for that.

You don't have much money? Buy a starter home first... townhouse, condo, something like that. Upgrade when you're ready. Don't even have money for a nice downpayment? Keep renting!
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Old 2006-12-11, 10:15 AM
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GregS GregS is offline
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It's the job that would be the biggest variable.

You are young, so uUnless you are a teacher or have some other government occupation, the likelihood of you having the same job in 5 years is pretty low.

You also said girlfriend... well set aside a bucket of cash to get married with.. or not as the case may be. Going into a large shared financial responsibility together can really change a relationship.

Buy what you can afford now. If you end up making more money and have good job stability, then bank your money and buy something bigger later on.
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Old 2006-12-14, 02:01 PM
jcampbell jcampbell is offline
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Quote:
Originally Posted by BomberMacIsaac
I had a question for people here. As a first time home buyer hopeful, I have spent the last year or so gauging what I believe my girlfriend and I can comfortably afford. With a decent down payment, years of earning power ahead of us, and a housing market that appears to always provide a return on investment, I am tempted to push the envelope to put as much into a house as the bank will allow us to (40% income to debt ratio. 32% income to house-debt ratio). I am ok with the idea of being cash-poor/house-rich for the first few years, because I believe that in 5 years or so from now we will be thanking ourselves.
Finally, someone who is thinking about doing the same thing that we've done. In buying our first home, we have definitely pushed the envelope beyond what a lot of people would be comfortable with. However, our mentality is that if we can afford the bigger home now, we won't have to move 3 times in the next 10 years from the town to the semi to the detached.

I know that job security is always an issue and that is something that you need to evaluate. With regard to spending big bucks on the wedding, my boyfriend and I have decided that a downpayment is much more important than 1 day in our lives. Yes, the wedding will happen, but on a much smaller scale than what we would have had if the house purchase hadn't happened.

The idea of being house-poor and having an empty house isn't so much of a deterrent for us because we've been living a "student" lifestyle for the past 8 years. We're also just so sick of renting that we decided to take the plunge into home ownership.

I wish you all the best in your search for the perfect home and hope that it all works out for you.....I hope that it works out for us too!! Only 9 and a bit months left to go, so we'll see!!

Good luck and don't be afraid to reach. It is possible!!
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Old 2006-12-14, 06:50 PM
KBMF
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I am also doing the same thing. My boyfriend and I have pushed the envelope and we may also be "house poor" for the first couple of years, but really like Jcampbell we are so used to the student life, not having lots of expensive furniture isnt a big deal. Plus, since we have been students for so long we would have to buy a lot of new furniture and rather than buy it all at once, I would like to get one great piece at a time. Even if it takes a while to save up for it Our home isnt very large though so it really wont feel empty .

Again we also plan on getting married but we have never wanted a super grande wedding and we also have no intention of getting married anytime soon, so having money for that isnt an issue for us. And although it is true that shared financial responsibility can change a relationship, this applies to everyone, married or not, so really you have to consider if your relationship can handle the extra pressure.

Job security is an issue but really like greg said unless you are a teacher or in government, it is always an issue. I have a fairly stable job but there is definetely more flexibility in my boyfriends line of work. Unfortunately, there will always be that flexibility, maybe less so in the future, but still there. It is definetely something we considered. And still we went for it.
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Old 2006-12-15, 12:00 AM
BomberMacIsaac BomberMacIsaac is offline
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Thanks everyone for the info. Some great points and I really appreciate the feedback. Looks like 2-for vs 2-against… : )

Mart, Greg,
Definitely understand those points. The job security you mention is the main point that will deter us if anything. My girlfriend and I both have good jobs with fairly large annual growth. While the past does not necessarily dictate the future, I don’t think job security will ever be a non-issue, so unless I see a definite end in sight, I think I may as well consider it a non-issue. The only thing it ever seems to add to the equation is stress. I am not concerned about a ½ empty house, or the stress on the relationship that this financial venture would bring on.

JCampbell, KBMF,
VERY glad to hear someone is on the same page as my girlfriend and I. Like you, we are only a few years out of the student life as well, so would rather go back to “student mode” for a few years if it means we can get into a house we absolutely love now. I do not like the idea of house-hopping as we grow. And really, when we both started our first post-university jobs a few years back, the rent and student loan payments we were making brought us pretty close to the 40% income/debt ratio at that time and we survived. OF course the commitment was not there being that we were renting, but surviving the budget worked. Like you we do not plan on getting married right away, and to us a house we love tops the wedding in priority.

Hope you don’t mind JCampbell/KBMF if I pm you with a few questions? Might just be all physiological, but takes a lot of the worry out of my system knowing there are some others out there that have taken the same approach.

Congrats everyone on your new home purchases!
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Old 2006-12-15, 08:51 AM
klmrobinson klmrobinson is offline
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One thing that looks like it was not mentioned that might be a factor is that if you max out your dept ratio, you will not be easily able to take on any more dept (other than high interest loads which are very bad). So, for example, if you wish to buy or replace a car you will have a hard time, especially since you will not build up any equity in your house for the first 5 years at least. The same for any other major purchase that requires credit and hopefully there are no problems with the house that you have to fix, it can be expensive. Also if you plan on having children factor in the loss of income for the time off for the baby as well as the added expense.

We went though a couple years where our ratio was very high and it was not very fun at all, if I had it over to do I probably would not do it again. But it is a personal choice and can be done. Just want to make sure you have all the info

Mike
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Old 2006-12-15, 09:19 AM
jcampbell jcampbell is offline
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Quote:
Originally Posted by BomberMacIsaac
Hope you don’t mind JCampbell/KBMF if I pm you with a few questions? Might just be all physiological, but takes a lot of the worry out of my system knowing there are some others out there that have taken the same approach.
No problem - I'd be glad to answer any questions you might have. There is definitely a lot of psychology in all of this and you're right, sometimes it's nice to talk with others who are going through the same thing.

Also, as a response to Mike, I completely understand where you're coming from and for us, the biggest contributor to our debt are the student loans, which will disappear in a few years. Without them, we would be laughing. We're also moving in with family for the next 9 months so we can save save save. That's helping out a ton!! It's going to be hard, but worth it in the end

Cheers,
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Old 2006-12-15, 09:47 AM
BomberMacIsaac BomberMacIsaac is offline
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Oops, just noticed I said “physiological” above, rather then” psychological”.

Thanks Mike. Yes this is definitely another factor I have thought about often. While we currently have car payments that work against our home/debt ratio, a purchase of a new vehicle would not be required until our current car is paid off anyhow.

Wedding/Baby however is another story, and yes, I do worry that hitting that high water mark will impede our ability to take that on. I guess it comes down to what I feel our growth potential is in our respective careers. And in that regard, we are leaning towards putting our faith in our drive to succeed and make strides in our careers.

Jcampbell, same is true of us where student loans make up our only debt that would be counted against our ratio (other then monthly car payment). As we know that limitation will be removed not too far into the future it gives us the ability to know when things will free up a bit.

Thanks again all for your information.
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