Why My Wife and I Didn’t Spend More Than $450,000 on a Home

by Barry Choi June 13, 2016 / No Comments

Over the last few months, RateHub has profiled the experiences of first-time homebuyers. Every homebuyer has a different experience and expectations so I wanted to share my story of becoming a homeowner.

My wife and I live in Toronto where the cost of buying a house is what I’d consider insane. Prices have increased dramatically over the last five years to the point where we quickly realized buying a house was no longer affordable. Well, at least not by our definition of affordable.

We had considerable savings and above-average incomes but that didn’t mean we were interested in spending a ton of money. Multiple lenders were willing to provide us with a mortgage of nearly $1 million to purchase a home. By their standards, this was affordable for us.

I literally laughed out loud when this number was presented to us. There was no chance we were going to approach anywhere near that amount. We decided the absolute maximum amount we’d be willing to spend on a property was $450,000.

We came up with that number based on a few factors. It was roughly three times our income, which was the traditional recommendation when purchasing a home. More importantly, we didn’t want the cost to carry our mortgage to affect our lifestyle and savings goals.

We’d still be able to take our yearly vacations, save for retirement, eat out, and afford to own a car. There’d literally be no impact on our current lifestyle. This was only possible because we ran all our numbers multiple times.

Before we started our search, we looked at online mortgage payment calculators to figure out what our monthly carrying costs would be. And we factored in all our additional costs to know what was a reasonable amount to borrow.

When it actually came time to buy, everyone we worked with was pretty impressed with the research we had done. Our mortgage broker loved how we had more than 20% saved for our down payment and how we understood the different types of mortgages. The realtor we worked with appreciated that we were realistic about our expectations and how we were trying our best to make the purchasing process as emotionless as possible.

Since we decided a condo was a more realistic option for us, it actually didn’t take long to find the right one for us. We went out three times and saw about 10 units. When the right one came up, we put in a bid right away. This was possible because we knew our numbers and understood the current market conditions.

Despite what you may have heard, not every home goes for over asking in Toronto. The two-bedroom unit was listed for $440,000 but we negotiated it down to $432,000. I definitely don’t feel like we got a deal. We paid market price.

Owning my home means I’m building equity and no longer paying someone else’s mortgage right? I’m not sure if that’s 100% accurate anymore. If I add up my mortgage interest, maintenance fees, property taxes, and utilities, it ends up being more than what we were paying in rent.

I’m proud and excited to be a homeowner but it was definitely cheaper to be a renter.

We bought because the numbers added up. We factored in all current costs and potential costs (a possible increase in interest rates)! Plus, we just wanted a place to call our own.

When we took possession of our condo, property management left a brochure for a company offering an additional loan if we didn’t have money to buy furniture. I laughed out loud again but clearly there are some people who might need this type of service.

Debt is something I prefer to avoid. We’re already on track to pay off the remainder of our mortgage in about five to seven years but I think we’re just going to invest our savings instead since interest rates are low. We’ve given ourselves plenty of options by knowing what we could afford.

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Flickr: Sam Xu