How We Were Able To Buy Our First Home.

We purchased our first home (and so far only home!) February, 2015 for $153,900. It is a 1500+ square foot 3 bedroom, two bathroom, 2 balcony, South and West facing, 5th floor condo built in 1971 that was super cheap. It wasn't cheap just because it had never been updated and still didn't even have electrical outlets in the bathrooms, but because it was pretty much DESTROYED. This was a bank sale. From what I have heard, the family that lived here before had experienced a flood and didn't have the insurance to cover damages. I would guess, by the vandalism, they were pretty angry about this... that aspect of it was kind of sad... but the size of the unit was too alluring to pass up. And since we'd be renovating it could be made into our dream home, right?

Prologue: we were renting a 2 'bedroom' apartment in Leslieville, Toronto that was roughly 600 square feet. The location was great, the building was not. It had many 'safety issues' but the main problem for us was that our unit was above the unit of a hoarder and no matter what we did, it was overrun with roaches. We were living there because we were trying to downsize; our daughter was just born and were trying to save up for a 20% down payment, but we just couldn't wait any longer.

Since we were first time home buyers in Canada: we could take advantage of the First Time Home Buyers' RRSP plan. And take advantage of it we did!

If this is something you want to do, talk to your bank! Our bank offered its clients a short term RRSP loan: you get the loan for pretty much whatever amount you want as long as it's going into your RRSP with that bank. It's got a super low interest rate (ours was 4%) and a fixed amount of time you can pay it back in (up to 5 years). Since our original plan had been to put X amount of money away per month for our down payment, it made financial sense to us to put that X amount towards the repayment of the RRSP loan instead WHILE living in and enjoying our owned home earning equity. BTW: the value of our condo has easily DOUBLED. That's a 'results not typical' kind of thing, but we got our condo at exactly the right time and we would've missed this opportunity if we didn't act when we did!

What we ended up doing was this: we got a pretty huge RRSP loan ($17,500) and put it in DH's RRSP. NOTE: IT HAS TO BE THERE FOR AT LEAST 3 MONTHS BEFORE YOU CAN USE IT TOWARDS A HOME. We were looking for homes and didn't plan on getting something we would need to renovate, but we wanted something we could carry while at the same time paying back the RRSP loan that would have monthly payments of $350 for 5 years.

We watch a lot of HGTV and DIY: Love it or List it, and Property Brothers always managed to get these fantastic renos done in just 6 weeks, so we gave ourselves what we thought was 'plenty' of time: 2 months. We used the First Time Home Buyers' plan for the 5% down payment, all the closing costs, and renovation costs. The down payment and closing costs and lawyer fees and inspections and all that came to about 10K on our $153.9K condo.

We were so naive! We were expecting that 7k would be enough for: demolition and gutting of the unit, electrical work to get rid of a fuse panel that was run on fossils and rusty pennies, several layers of flooring everywhere, two bathrooms, a kitchen, all lighting, some anti-pigeon nets, new doors everywhere... it was a really long list. When people warned us this would not be enough, we said ‘oh, but we’re going to do the work ourselves!’ as if this would compensate for the thousands upon thousands of dollars our estimate neglected to factor in.

FYI: we got great deals on the work we had done. Still: it was over 7k JUST to do the electrical work! And, aside from the nets on the balconies, electrical was just about the cheapest thing on that list above. So we got a Line of Credit. We made sure that any debt we incurred was no more than 4% interest. At the time, that was possible. Now it's gone up to 5.2%, which is still 'do-able' for us. Be sure to figure out how much your payments are going to be and know how long it will take you to pay things off.

You can also try ‘for now’ solution so you can save up and plan for when you can do things ‘for real’ later. For example: Ask friends for help! We got a hand-me-down dishwasher from my best friend that we used for the first year as a gift (thanks Tanjah! xo) and a beautiful used couch from my childhood babysitter (thank Yvonne! Xo) and the BEST help when it came to storage/closets from another awesome friend (thanks Lorne! Xo) Also, we used appliance paint to paint the fridge and craigs list for some other furniture. That allowed us to put off buying certain things while investing in more critical things that HAD to be done: like doors and walls and sinks and toilets for the bathroom!

We also took advantage of the Home Depot 'don't pay for 18 months' deals, interest free grace periods on credit cards like MBNA MasterCard and an Avion offer I got from RBC. We used PC MasterCard, Shoppers Drug mart optimum card to collect points towards groceries. The most important thing to do is to keep track of when bills are DUE and PAY THEM. We made sure we didn't put anything on a card that we weren't (reasonably) sure we'd be able to pay in full when it was due.

Here's an example: if we wanted some appliances and reno supplies from Home Depot we would wait for a 'don't pay for 18 months' deal. We would figure out how much we could afford per month for 18 months. If we purchased $2000 worth of stuff, we would pay at least $120 a month to our Home Depot bill... in theory...

We obviously needed a lot more than that 7k I mentioned before to get our condo to a habitable status... especially with a preschooler in the mix. Remember I said we carry the line of credit because it's the lowest interest rate? Well, ZERO is lower than even 5.2%.. So we pay that $120/month that's slated to pay back Home Depot to our Line of Credit ON TOP OF what we pay the line of credit in principal/interest/insurance. When the Home Depot bill becomes due: we will have enough space on the line of credit to cover the Home Depot bill. Doing it this way means we save some of the interest costs being charged to the Line of Credit.

It's basically just seeing debt as something that you can move around and making sure that it's in a place that is the cheapest to store it. A key factor when playing this 'game' is to follow the #1 rule: pay it in full before it's due. If you can't, move it to the cheapest possible place you can.

All the debt we have is what I believe is 'good debt'. It has gone towards an investment: our home. Our home is our asset. The value of our home has gone up way more than the amount of debts we have or the cost of the interest. It costs us about 5.2% to have this debt, but the value of our home has gone up way more than more than 20%.

So our renovation is still ongoing... and probably will be for the next 10 years...

But we OWN this. And it's AWESOME.

Our castle! Fifth balcony on the left!

WHAT I LEARNED:

1. If I knew then what I know now, I would've been taking out RRSP loans every single year I was working. Talk to an accountant. Find out what your 'sweet spot' is. If you put X amount in your RRSP, then you will get Y amount back in your income tax return. Try to make X and Y as close to equal as possible. That way, you can pay your RRSP loan back with your Income tax return and it's like the government is helping you save for your future home purchase.

2. You might qualify for a bigger mortgage: we were approved for $450k! But it's MUCH better to have a TON of wiggle room when it comes to affording your home. Our cost projections were way off and we had no idea of all the stuff we'd need to consider day to day as it came up due to, not just to "living la vida Reno", but also home ownership in general. (2017 hint: condos are 'on the rise')

3. You can use the first time home buyers' plan for everything involved in buying your first home, not JUST the down payment. NOTE: the money has to be in there for at least 3 MONTHS before you can use it.

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If you liked this article, you might wanna check this one out too: Finding The Right Home For You