Recently, I read an article about survey results on the home-buying habits of Quebecers published in the TD Canada Trust Home Buyers Report. Among other fascinating tidbits, the survey found that Quebecers were less concerned than people in other parts of Canada about being able to afford their mortgage payments if interest rates rise, and are also more likely to fork over a downpayment of less than 20% than their national counterparts.
“It’s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time,” says Christine Marchildon, Senior Vice President, QuebecRegion, TD Canada Trust.
“I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference... Speak with a representative at your bank about setting up an automatic savings plan to help you save,” she continues.
I found her last statements so hysterically funny I almost choked on my toast. No offense to Christine Marchildon, but I wondered if she's ever applied for a mortgage at her own bank. You see, I have. I was quickly pre-approved for a nice little mortage. In fact it was so nice, it was actually more than I could realistically afford. My initial reaction, when presented with the sum, was "Wow, I can afford that?" "Of course you can!" laughed the young "representative" at our bank,"you gave me all your info, I added up what you make and what you spend and owe, and tah-dah!! This is what you can afford. Trust me. Now sign. Please. " (More or less-I'm taking artistic liberties).
Well, we did the math back and forth and ultimately set our sights homes that cost about $40,000 less than what we were pre-approved for. We thought, what if one of us loses her job? What if interest rates sky rocket? Do we want to be eating Ramen noodles for the next five years? We HATE Ramen noodles. Ultimately, our decision was based more on fear than on financial savvy, but we have never regretted it.
In hindsight, and knowing what we know now, we would have been backed up against a wall and very financially strained had we bought the home we were told we could afford. We might have had a prettier, more spacious home. But we would have had to make some very different decisions about our lives to be able to afford that home.
Which brings me back to the first thing Christine Marchildon said, the part about it being natural to want your first home to be your dream home. Really? Common yes, but natural, I'm not so sure. Whatever happened to the concept of starting out small, building equity and moving up into your dream home? Don't get me wrong: I had a dream home all picked out when I was 7 (Tudor-style mansion with a French Chateau décor--my mom liked Architectural Digest) but it never occurred to me that this should be the first home I own. And there are lots of days I curse this shoebox all four of us are crammed into. But lucky for us, there has never been a day when we had to eat Ramen noodles because we were house broke.
It's especially tempting to believe your first home can be your dream home when your banking representatives tells you can afford it. You want to believe that you can afford it. But before you buy that house, do the math very carefully. Forget that list of what you make, owe and spend that the bank works from: add up all your receipts for a month and take a look at how you really spend your money. Imagine all the worst case scenerios: you lose your job; you break up; interest rates soar. Imagine what it might feel like to not be able to eat out, get your hair cut, buy a new outfit, keep your kids home, buy Christmas presents, take a vacation, all because most of your money is going toward your mortgage. This won't be fun. You may have to readjust your vision of what your first home might look like. But a dream home can quickly become a nightmare if you can't pay for it.
Better to be happy in an imperfect and affordable little shoebox.
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