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Road to money management: buying your first home before starting a family

In our five-part series, Road to Money Management, we share stories about Canadians to help you make the most of your financial situation at key stages of your life.

Gregg and Lisa* are a millennial couple living in a smaller community just outside the Greater Toronto Area with no children. They are planning to start a family soon, and their big dream is to raise their children in their own home.

They are concerned about the continuing increase of house prices in their area and across the country, and worried about being priced out of the market if they don’t act soon. They have been saving for years for a down payment, have stable jobs and feel they are close to having enough for a starter home but are worried about being house poor.

Gregg and Lisa have heard about the government’s First Time Homebuyer Incentive and plan to take advantage of it. One of the offers of the federal incentive program is a shared-equity mortgage that offers five percent for a first-time buyer’s purchase of a resale home, which Gregg and Lisa are planning to buy. That will allow them to have a lower down payment but still get into the market.

They have used an affordability calculator and done the mortgage stress test, which proves that they could afford mortgage payments should interest rates increase in the future. All this has helped them feel more confident that they would be able to buy a house and carry a mortgage. Also, because they had been planning to enter the housing market for some time, they have paid off a lot of debt over the past few years. Their debt-to-income ratio is at 22%, which is lower than the threshold guideline recommended by the Financial Consumer Agency of Canada.  

The couple has also decided to go with a five-year fixed rate because they like the consistency that it will give to their budgeting.

They feel they are getting close to realizing their dream and are aiming to get a mortgage of around $500,000. They have decided on a real estate agent they feel comfortable with, who has helped guide them through the costs associated with owning a home, such as: insurance, legal fees, real estate agent fees, moving expenses and even other important purchases such as a lawnmower and furniture.

Gregg and Lisa had considered buying a multi-family property and renting out part of the house to help offset the costs of home ownership, but as a young couple starting out and expecting to be new parents soon, they decided that the extra responsibility of being landlords would add too much to their plate as they also have busy full-time careers.

Over the next month, they plan to start scouring the listings in earnest. Now that the initial financial planning for home ownership has been put in place, they feel more confident that they can carry a mortgage and become homeowners without being house poor – and they hope to buy their dream home soon.

One thing on their money management journey they know they will need to address in the future is financially planning for a new baby. They have an appointment set up in a couple of months with their financial planner to discuss what a child will mean to their insurance, investments and long-term financial planning. Raising a child in Canada costs an estimated $10,000 to $15,000 a year, so Gregg and Lisa want to be as financially prepared as possible before they try to get pregnant.

They will also need to look into parental leave options when the time comes, as well as the government benefits available to parents when they plan their family budget. Luckily, Lisa’s parents will help with daycare, and Gregg’s parents have offered to set up a Registered Education Savings Plan (RESP) once the baby is born to build savings for post-secondary education. The family often laughs about how it takes a village to raise a child, planning has made them realize how this can be true, and Gregg and Lisa feel fortunate that they will be getting such help from the future grandparents.

While they know that there are likely to be many ups and downs as they plan for these big life milestones, and assume unexpected expenses are likely to come up, they are excited to be taking their next big steps as a couple together.

Next in our series: Gord is a single dad to Kieran, age 5, and plans to start him on an allowance to teach him about money management.

*Gregg and Lisa are not an actual couple, but their story is indicative of what many people are facing when it comes to finances and money management. It should not be construed as financial advice. Reach out to a financial advisor to discuss your situation and help determine what you need to achieve your financial goals.

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