Buying a place with your LOC

[Jochi1543]

I'm interested in talking to people who got a mortgage at the same time they got their LOC - ideally, single people like me (no spousal income or credit history to contribute). I should be able to get downpayment from my parents (10-15%), my credit history should be clear, but I have about 25 grand in debt (some assets, some CC and govt student loans). I don't know a whole lot about this, so I'd appreciate a few informative posts (feel free to PM if you don't wanna post details on here) because I can't meet with a banker until June. I guess my introductory questions are:

 

1) Am I much better off getting a mortgage while still employed or does it not matter? I can't get started on this till June, and I plan to quit my job in mid-July. My previous notices of assessment are crap, though, because I only started working full-time last December, so I don't even know if my income this year will make a difference. I have, however, been employed FT for 6+ months in the same place, which I know is required for a regular mortgage.

 

2) Am I more likely to get a mortgage if I got it from the same financial institution where I got my LOC? If I got a LOC and a mortgage from the same bank, should I expect any perks - lower than average interest rate on the mortgage, or something along those lines?

 

3) Should my mortgage amount be same or below my total LOC amount (150K or less), or can I take out a mortgage for more than my LOC? I'm trying to figure out how much downpayment I need.

 

4) Is there any benefit to paying off my CC debt before applying for the mortgage? When I first considered buying a place last year, my banker told me not to worry about it, but I had way less debt on it then.

[smile]

Renting would be a better option unless you really believe that housing prices will increase at least 3-5%/year over the next four years. Buying is not always the best option.

[Hopeful Med]

I agree with smile. The uncertain RE market coupled with your debt load would not make much sense to buy at the moment. You should wait and see what the market will bring.

 

Banks at the moment are being careful with approvals especially with us single folk not earning a great deal of money. I have been working for two years, have a good downpayment and the bank still wanted me to have my parents co-sign. I have no loans of any kind and no CC debt but the banks were still being careful.

 

i have decided to rent for the moment.

[Jochi1543]

Renting would be a better option unless you really believe that housing prices will increase at least 3-5%/year over the next four years. Buying is not always the best option.

 

I dunno, man...sinking 40 grand back in my own pocket or in someone else's? In the past 5 years, I've paid 40 grand in rent. If I rent during med, I'm looking at nearly doubling that and still not having any assets to show for it. Even if the prices drop another 5%, I'd be better off, in my opinion. Plus the rates are so low right now. I bet next year, you'll have the same (or higher, given that they've already dropped) prices and a higher interest rate. If I can't sell it at a profit, I can always rent it out.

[smile]

I dunno, man...sinking 40 grand back in my own pocket or in someone else's? In the past 5 years, I've paid 40 grand in rent. If I rent during med, I'm looking at nearly doubling that and still not having any assets to show for it. Even if the prices drop another 5%, I'd be better off, in my opinion. Plus the rates are so low right now. I bet next year, you'll have the same (or higher, given that they've already dropped) prices and a higher interest rate. If I can't sell it at a profit, I can always rent it out.

 

Renting usually only makes sense when real estate values increase. $40 000/5 years = ~$667 rent/month. Try plugging the numbers in on a mortage here: https://www.rbcroyalbank.com/cgi-bin/mortgage/mpc/start.cgi/start

 

Plugging in a mortgage amount of $133k, an amortization of 25 years, a monthly payment frequency, and an interest rate of 3.5% (very competitive right now at 4-year interest term) gives you a monthly payment amount of $664. After 4 years, your mortgage balance will be $118 659. So after four years, you managed to knock off $14 341 from your mortgage. Remember, you'll also be paying property taxes in the order of at least $1600/year. That's $6400 over 4 years. You're now up $7941 after four years. Then remember to include monthly water bill, electricity, home maintenance, etc and you will not break even. So now you're thinking, well, buying is better than renting since I still managed to have a portion of my down payment intact. Not necessarily. Remember that 15% down payment? That would work out to about $33k down if you were getting a house worth $166k of which $133k is mortgaged. That down payment of $33k is roughly how much you'd pay in rent over four years ($667x12x4=$32k). Hell, you could throw that $33k down payment into a high-interest savings account and you will end up with a result just less than purchasing your own property. Also, remember to factor in the tax credits you'd have from renting!

 

Bottom-line: Renting isn't stupid. The rich do it all the time. Purchasing real estate is taking a risk. The only time that purchasing real estate is a wise decision is when you believe its value/price will go up more than what you'd accrue from investing your money in safe investments (GICs, savings accounts, government bonds). Here's the thing though: property values in first-world countries trend upwards. It's up to you whether it'd be worth the hassle to be gain some equity in this market. Personally, I'd buy since I think the real estate market is at its lowest point, but you need to factor in conveniences, pride of ownership, expenses, etc. to figure out what's best for you.

[Jochi1543]

 

Bottom-line: Renting isn't stupid. The rich do it all the time. Purchasing real estate is taking a risk. The only time that purchasing real estate is a wise decision is when you believe its value/price will go up more than what you'd accrue from investing your money in safe investments (GICs, savings accounts, government bonds). Here's the thing though: property values in first-world countries trend upwards. It's up to you whether it'd be worth the hassle to be gain some equity in this market. Personally, I'd buy since I think the real estate market is at its lowest point, but you need to factor in conveniences, pride of ownership, expenses, etc. to figure out what's best for you.

 

Yeah, I'm gonna be running everything by my dad, who's been very successful in commercial real estate. If he thinks it's not a good idea, I'll rent, but after talking to him today, he said he doesn't feel very strongly one way or another, he just told me to do more research and then he can help me figure out whether it makes more sense to buy or rent. We'll see what he says once I send him some figures (gotta talk to the bank first).

[Jochi1543]

Speaking of investments, what are your guys' views on taking $ from your LOC and investing it into a few indexes and mutual funds? I invested in undergrad and was quite successful (returns of over 10% a year), but then I had to take the $ out because I needed it for more important things (like food ). Anyone here thinking of juggling some cash in the market?

[Satsuma]

2) Am I more likely to get a mortgage if I got it from the same financial institution where I got my LOC? If I got a LOC and a mortgage from the same bank, should I expect any perks - lower than average interest rate on the mortgage, or something along those lines?

 

3) Should my mortgage amount be same or below my total LOC amount (150K or less), or can I take out a mortgage for more than my LOC? I'm trying to figure out how much downpayment I need.

 

4) Is there any benefit to paying off my CC debt before applying for the mortgage? When I first considered buying a place last year, my banker told me not to worry about it, but I had way less debt on it then.

 

Your financial institution gave you your educational LOC based on your projected income. They MAY decide to give you a mortgage based on projected income - if you have a decent down payment (that doesn`t come from your LOC) and good credit history/ low debt/income ratio - seems perhaps with your CC debt that may not be the case. Otherwise it will be very difficult especially in this economic climat to get a mortgage and if you do, I doubt the rate would be that competitive.

 

You should not expect any perks for getting your mortgage - you will be lucky enough to just get a mortgage...you will be unemployed after all.

 

The amount you take out on your mortgage is not related to the size of your LOC. You should ask for whatever size mortgage you can afford (and I would seriously consider how much you think that is) and will allow you to purchase the home you want.

 

If you can pay your CC debt, I don`t see why you wouldn`t. Arent you paying crazy interest? People who pay only their minimum payment on their credit cards have worse credit scores than those who pay the full balance.

 

Renting really isn`t that bad an option.

 

There are alot of expenses with buying/selling a house. Lawyers fees, realtor fees, home inspection fees, land transfer taxes, property taxes (somebody quoted $1600/year...depending on where you live it could be more than twice that- mine are). Not to mention you will also now be required to fork over cash and time for maintenance - lawnmowers, snow blowers, lawncare stuff (sprinklers, fertilizing, weeding etc), home insurance etc. Also, you should have some sort of cushion for repairs for things that might need attention...furnace etc.

 

You need to sit down and look at your situation and see if owning is really feasible (owning somewhere free of drug dealers and somewhere you could sell easily enough again at the end of 4 years - note that 4 years is pushing it for breaking even, most say at least 5 and even then no guarantees).

[future_doc]

Speaking of investments, what are your guys' views on taking $ from your LOC and investing it into a few indexes and mutual funds? I invested in undergrad and was quite successful (returns of over 10% a year), but then I had to take the $ out because I needed it for more important things (like food ). Anyone here thinking of juggling some cash in the market?

 

Timing is everything. Virtually every money manager has lost huge sums for their clients lately. They did not have their eye on the ball and were following the crowd, while shaving of their management fee. In the past, it may have been wise but in the volatile and uncertain market today, you will be gambling whether you realize it or not; and you can afford the profit, but not the potential loss. Therefore, on balance, I suggest you err on the side of caution. The market gurus have proven themselves not to be the great experts they claim to be after all.

[Martin Louis the King Jr.]

I'm interested in talking to people who got a mortgage at the same time they got their LOC - ideally, single people like me (no spousal income or credit history to contribute). I should be able to get downpayment from my parents (10-15%), my credit history should be clear, but I have about 25 grand in debt (some assets, some CC and govt student loans). I don't know a whole lot about this, so I'd appreciate a few informative posts (feel free to PM if you don't wanna post details on here) because I can't meet with a banker until June. I guess my introductory questions are:

 

1) Am I much better off getting a mortgage while still employed or does it not matter? I can't get started on this till June, and I plan to quit my job in mid-July. My previous notices of assessment are crap, though, because I only started working full-time last December, so I don't even know if my income this year will make a difference. I have, however, been employed FT for 6+ months in the same place, which I know is required for a regular mortgage.

 

2) Am I more likely to get a mortgage if I got it from the same financial institution where I got my LOC? If I got a LOC and a mortgage from the same bank, should I expect any perks - lower than average interest rate on the mortgage, or something along those lines?

 

3) Should my mortgage amount be same or below my total LOC amount (150K or less), or can I take out a mortgage for more than my LOC? I'm trying to figure out how much downpayment I need.

 

4) Is there any benefit to paying off my CC debt before applying for the mortgage? When I first considered buying a place last year, my banker told me not to worry about it, but I had way less debt on it then.

 

As risky and daunting as it may seem getting into the market i think buying a place of your own is always better than renting. You just have to be smart about things. If you can put down 15%, as you mention, on a condo for instance your, mortgage shouldn't be too high. It would most likely be the same as your rent. If you get a 5 yr term, by the time you done medical school, you can sell that home and even if your home's value hasn't gone up significantly you'll get a bit of money back which you wouldn't if you rented for 4yrs while in med sch. The other option is keeping the house as a rental property if the market value is low and thus making it unreasonable to sell. If you are able to afford a place with 2 or 3 rooms, you can also rent the spare room(s) out to help pay your mortgage.It's definitely something to really consider....

[The_B]

As risky and daunting as it may seem getting into the market i think buying a place of your own is always better than renting.

 

I so disagree. If you buy a place and housing prices don't work out, you lose. The rough estimate for time horizons I have heard is 5 years. Otherwise, you are taking a decent risk that you'll have a property that you haven't paid much more than interest off and could lose money when you take into account all the fees and taxes involved.

 

My very simply advice to Jochi and anyone else in her shoes. Go and talk to MD management. Tis their job to help you in financial matters such as these. They alone, can give you educated advice that is geared towards students in your shoes...for Free. IMO, you'd be silly not to use that resource.

[Jochi1543]

As risky and daunting as it may seem getting into the market i think buying a place of your own is always better than renting. You just have to be smart about things. If you can put down 15%, as you mention, on a condo for instance your, mortgage shouldn't be too high. It would most likely be the same as your rent. If you get a 5 yr term, by the time you done medical school, you can sell that home and even if your home's value hasn't gone up significantly you'll get a bit of money back which you wouldn't if you rented for 4yrs while in med sch. The other option is keeping the house as a rental property if the market value is low and thus making it unreasonable to sell. If you are able to afford a place with 2 or 3 rooms, you can also rent the spare room(s) out to help pay your mortgage.It's definitely something to really consider....

 

Yeah, I plan to get a 2-bedroom and rent one room out. Cheaper than buying a 1-bedroom.

[Jochi1543]

I so disagree. If you buy a place and housing prices don't work out, you lose. The rough estimate for time horizons I have heard is 5 years. Otherwise, you are taking a decent risk that you'll have a property that you haven't paid much more than interest off and could lose money when you take into account all the fees and taxes involved.

 

My very simply advice to Jochi and anyone else in her shoes. Go and talk to MD management. Tis their job to help you in financial matters such as these. They alone, can give you educated advice that is geared towards students in your shoes...for Free. IMO, you'd be silly not to use that resource.

 

Are they pretty impartial? That's my biggest concern in this situation, getting sucked by some salesperson into something I don't understand 100%.

[fireball]

Are they pretty impartial? That's my biggest concern in this situation, getting sucked by some salesperson into something I don't understand 100%.

 

I just talked to them. The woman I spoke to informed me that the majority of the workers there are actually CFP's! She said that because they work for the Canadian Medical Association (which owns MD Financial), their job is to ensure that you graduate from medical school with the least amount of debt, and that you be in the best place to repay that debt. While I know they are of course out there to sell a LOC to you, it's pretty cool the steps they take to ensure that you are in a good place before and after medical school. Overall I was very impressed with our conversation, and I highly reccommend calling them Joch.

[Jochi1543]

I just talked to them. The woman I spoke to informed me that the majority of the workers there are actually CFP's! She said that because they work for the Canadian Medical Association (which owns MD Financial), their job is to ensure that you graduate from medical school with the least amount of debt, and that you be in the best place to repay that debt. While I know they are of course out there to sell a LOC to you, it's pretty cool the steps they take to ensure that you are in a good place before and after medical school. Overall I was very impressed with our conversation, and I highly reccommend calling them Joch.

 

Thanks, I was gonna give them a call anyway, but I thought they were just there for LOCs, not so much advising.

[smile]

Are they pretty impartial? That's my biggest concern in this situation, getting sucked by some salesperson into something I don't understand 100%.

 

Don't sign anything on-the-spot even if they insist that it's a time-sensitive offer. Always get a second opinion from friends/family/us if you're confused.

 

By the way, Satsuma listed many other expenses that should be looked at when purchasing property. That $1600 figure for property taxes was the bare minimum for Edmonton. The average is $2100/year.

[Martin Louis the King Jr.]

I so disagree. If you buy a place and housing prices don't work out, you lose. The rough estimate for time horizons I have heard is 5 years. Otherwise, you are taking a decent risk that you'll have a property that you haven't paid much more than interest off and could lose money when you take into account all the fees and taxes involved.

 

My very simply advice to Jochi and anyone else in her shoes. Go and talk to MD management. Tis their job to help you in financial matters such as these. They alone, can give you educated advice that is geared towards students in your shoes...for Free. IMO, you'd be silly not to use that resource.

 

I get what your point but the market can go either (high or low) way no matter when you buy a home. If anyone put a 15% on a 2 bedroom condo, after 4yrs of med sch, you can leave it as a rental property and wait till the market's favorable to sell again!! Renting is a bad bad bad idea especially if you can offord a substancial down payment on a not so expensive condo/townhouse. Renting is a loose loose situation, buying is in the most persimistic view and loose or win situation. I'm planning on getting a place soon here in Calgary regardless of where i'll get into med sch in the near future(i hope)..like David Bach puts it "you don't wait to get into the real estate market but rather get in and wait" to build some equity. Having said that the risk as with any investment still remains and anyone should be careful and thoughtful before make any move...

[Laika]

Go and talk to MD management.

 

I met with my FP from MDM last summer and we discussed this scenario in detail. We ultimately decided that it was not worthwhile to purchase. The small probable financial gain was outweighed by the possibility of housing prices dropping, needing to sell in 4 years and the hassle of being stuck with property in a city where I was no longer living, the commissions and fees associated with selling, having interest rates go up, etc, etc. Ultimately, one decision will be the best in retrospect 4 or 9 years from now, but it's hard to guess now. I went with the less risky route.

[Jochi1543]

Keep posting, you guys, thanks for the info so far. Incidentally, for whatever reason, most of the posts I get are discouraging, while the 2 PMs I've got so far were encouraging, lol.

[smile]

Renting is a loose loose situation, buying is in the most persimistic view and loose or win situation.

 

I'm going to politely disagree with this statement. How is renting a double loss? Hell, if you locked into a high interest savings account or GIC in the last couple years, you'd be REAPING the rewards for renting vs buying - it'd be a win-win. Anyone who bought last year would be in a lose-lose situation. I sincerely think renting isn't a bad idea, but neither is buying! I just don't think doing one vs the other with 15-20% down will make much of a difference in four years. That being said, the market is at a LOW.

[Jochi1543]

Anyone who bought last year would be in a lose-lose situation.

 

They are lose-lose if they were to sell right now, but no one can say whether they will make a huge profit 5, 10, 15 years from now. I mean, look back to the early 2000s in Calgary - I know people who have sold their places for 400% of what they had bought them for only 5 or so years prior. You never know what's gonna happen. Yes, things could get much worse, but also much better.

[rmorelan]

On a related note I can see the impulse to invest. Just went to my bank and inquired on a LOC for the coming year. They offer 60,000 in the first year, and 30,000 for the next three. That's before OSAP. At prime (2.25%) Holy crap!

 

The econ major in me is screaming to do something with that! Particularly since I have savings already for at least the first year.

[NLengr]

Speaking of investments, what are your guys' views on taking $ from your LOC and investing it into a few indexes and mutual funds? I invested in undergrad and was quite successful (returns of over 10% a year), but then I had to take the $ out because I needed it for more important things (like food ). Anyone here thinking of juggling some cash in the market?

 

Considering I lost 30% of my investments since Sept. I would stay far far away from the market, unless you have real confidence you can pick winners.

 

This is not a time to be buying stock on credit, at least in my opinion.

[rmorelan]

Considering I lost 30% of my investments since Sept. I would stay far far away from the market, unless you have real confidence you can pick winners.

 

This is not a time to be buying stock on credit, at least in my opinion.

 

Not that I am exactly recommending it, but the entire buy low/sell high thing would seem to apply. US index funds have lost about 40% of their value recently. If were going to buy, you would think now would be approaching the time.

[Jochi1543]

Not that I am exactly recommending it, but the entire buy low/sell high thing would seem to apply. US index funds have lost about 40% of their value recently. If were going to buy, you would think now would be approaching the time.

 

QFT. 10char