Preparing for home ownership

Author: Evelyn Kwong
Source: The Toronto Star

At 34, Sandro is able to call himself a homeowner in Toronto, unlike many other millennials.

"Thankfully, I have an inheritance from my grandpa, as buying a house in the city would be nearly impossible," said Sandro. "I'm worried about how much I'll have to pay soon."

Making $150,000 a year, including bonuses as a marketing manager, the recent inheritance and the savings he had from living at home helped him cover his down payment.

"I know my lifestyle will have to change," Sandro said, adding that he and his partner enjoy going on dinner dates to try new food. "We are trying to rethink how we can enjoy food in the city as homeowners. What is a good cost amount per month?"

On a typical day, Sandro doesn't tend to spend money on breakfast and lunch. Dinners consist of creating new fun dishes at home, which requires lots of additional grocery trips, or going out to a new restaurant. Now, with his high mortgage payments, he knows that'll have to change.

His goal is to find a balance: How can he pay off a huge mortgage while still enjoying the perks of city life?

We asked him about his current weekly spending to get a better idea.

The expert: Ontario-based financial planner, Jason Heath, on Sandro's first home.

Sandro is excited but apprehensive about moving into his first home in December, and understandably so. The good news is there are a couple of government programs to help with the closing costs.

Some provinces, including Ontario, offer land transfer tax rebates to qualifying first-time homebuyers. Homes in the city of Toronto also qualify for a rebate for first-time buyers. Sandro could be eligible for up to $8,875 of combined rebates. He should discuss this with his real estate lawyer. He will also be able to claim the homebuyer's amount on his tax return in April as a first-time homebuyer. This is a federal tax credit that could result in a tax refund of $750. Some provinces also offer provincial rebates, but not Ontario.

A homeowner should be careful about considering their home an investment. A home is a place to live.

RRSPs, TFSAs, pensions and rental real estate are true investments that can be used to provide retirement income. Given Sandro's high income, RRSP contributions would be a good tax and savings tool for him, generating tax refunds of 43 per cent at a $150,000 combined salary and bonus.

Sandro and his partner should try to track their expenses and set saving and spending targets going into their first year of home ownership and living together. They should also review their disability insurance coverage and life insurance needs, and ensure they have up-to-date wills and powers of attorney.

The results: He spent less. Spending in week 1: $406 Spending in week 2: $305

How he thinks he did: "I spent about $100 less, but I'll have to prepare soon to pay more than a thousand bi-weekly when I move in," Sandro said.

This week, the two experimented with eating at home more and meal prepping.

"We are talking about limiting our nights and dinners out to once or twice a month," Sandro added.

Take-aways: After reading the advice, Sandro's first steps are to get a clearer understanding of his benefits as a first-time homebuyer.

"Buying a house is so complex and if you miss those details, you can lose a lot of money," he said, adding that he has contacted his lawyer to go over the details step by step.

The advice also made Sandro more clear about how he should view the house. "We did see it as a home first and foremost. I just get caught up in all this investment talk about how houses are basically a way out for people," he said.

He had ideas to save a lot more to renovate, but will more closely watch the market to see how much he wants to put in. "Personally, I like the house as it is, even though some may see it as more rustic," he said.

Sandro also recognizes that he is incredibly lucky to have received an inheritance from his grandfather to help put down a large down payment.

Finally, Sandro and his partner will do their best to track their weekly-to-monthly spending as homeowners.

"We are going from zero to 100 here. We have made a commitment to be willing to change our lifestyles," he said.

This article was written by Evelyn Kwong from The Toronto Star and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.