“I’m a govt worker, my boyfriend is a journeyman plumber, we don’t have kids, how are we supposed to save up a 10% down payment for a mortgage?”

“I’m a govt worker, my boyfriend is a journeyman plumber, we don’t have kids at the moment, I’d say we live “comfortably paycheque to paycheque”, but how are we supposed to save up a 10% down payment for a mortgage?
We have had no issues paying our landlord’s mortgage – $1250 for a 2 bedroom condo in Poco, so clearly we are willing and able to afford our own mortgage, but we are just unable to save up for the gouging cost of a down payment. Are we supposed to borrow from the bank of Mom and Dad? Buy in with our siblings? What is happening to our independence?”

Mrs.PacMan, comment, Vancouver Sun, 18 Oct 2011 3:53pm

43 responses to ““I’m a govt worker, my boyfriend is a journeyman plumber, we don’t have kids, how are we supposed to save up a 10% down payment for a mortgage?”

  1. Not being able to purchase something in this market may be the best luck you have ever had. If you can’t afford to save anything, how are you going to be able to afford to “invest” a monthly amount in real estated. To add you’re adding money to a falling market – you’ll lose faster than you can imagine.

  2. This is a curious post.The plea is for no money down mortgages? It is my understanding that they exist – in the form of cash back (they will give you the down payment back and tack it on to the end of the mortgage).

    In most major cities in the developed world, this is an example of a couple that would most definitely be renting, not owning.

  3. I’d like to know how much they expect to be paying out monthly for the privilege of owning their place even if they were magically given a downpayment. Take that number and subtract $1250, and there’s your savings.

  4. In a normal market DancinPete is spot on. Here (and now) it’s quite a bit worse. The monthly outlay of owning = $1250 + savings component + consumption value of ownership + lottery ticket cost.

    The latter two are usually quite small.

  5. If you are in Ben Rabidoux withdrawal take a look at these charts

    http://www.pacificapartners.com/blog/2011/10/24/1488/

  6. ” I’d say we live “comfortably paycheque to paycheque”, but how are we supposed to save up a 10% down payment for a mortgage?”

    I think she answered her own question.

    • no kidding. How does a DINK couple making (what I can only assume) is a reasonably good household income, and only paying 1250/month in rent, not save anything else? Stop spending it on blow and hookers!

      • Has anyone researched the impact of super low interest rates on the cost of blow and hookers over the last 10 years?

  7. Put aside for the moment this couple’s spending habits which may or may not excessive. I see this as a common problem of having kids moving out on their own rather than nesting at home which is much ridiculed here and elsewhere. The reason is simply that the money they spend on rent is money they can’t save. If let’s say they can nest at home and pay a nominal fee to the parents liek $500/month then they automatically get an extra $750/month they can save for down payment. Yes there are tradeoffs, sacrifices, etc, but when you have limited amount of money, you have to decide what’s more important, saving for a down payment/RSP/future child expenses/etc, or spend it now for freedom, independence, etc.

    So that’s why I always felt that CHMC home insurance for first time home buyers with a cap on mortgage amount makes sense because a lot of young families/immigrants that can pay the monthly mortgage but don’t have a big enough down payment. I support giving these people an option to not have to wait 10, 15 years to save that down payment while spending lots of money each year on rent. Paying 30% of your net income to rent really limit how much you can save for that down payment.

    • pricedoutfornow

      It’s a nice idea in theory, living with parents until you save enough to buy. But not all of us are fortunate enough to have parents who live in the same city even. Or some parents just drive you up the wall and we couldn’t wait to leave right after high school/college. It’s not always an option though I envy those who can manage (and actually do save the money, rather than just mooching off the parents to live a better lifestyle with more “toys” and vacations).

    • space889, thats ridiculous – are you saying that people that are subsidized to live at home are somehow better managers of their own money? I employ plenty of young people that still live at home – they blow their money on cars, dining out meal, leisure activities without bounds, and basically live paycheque to paycheque – the only difference is they have more paycheque because they have relatively low expenses.

      When I moved out of my home at the age of 19, I was able to manage my money immediately – because I took the time to learn about money management and was smart enough to realize that I had to save a bit of everything I made. Its not that hard to grasp.

      • I’m sure there are a few who save. Heck the parents have spare bedrooms so it would be a waste to keep them empty.

        The best investment a kid can make is to make the parents feel guilty. Blow it all on cars and clubbing, then complain how the boomers have eaten their lunch. Wrong, sure, but there’s $ on the table for manipulative SOBs.

      • Uhm…I made no such claim. I’m merely saying that by living at home with lower rent expenses, one would have the opportunity to save more money for that down payment than if one is renting.

        To use your arguments, we also say that renters who saves money relative to buying are also poor money managers who blow their savings on cars, vacations, frivious activities, etc and living paycheque to paycheque.

  8. “how are we supposed to save…”

    I’ll answer this question seriously.
    1) track money coming in every month
    2) don’t spend all your money every month, you need to put some in the bank
    3) figure out ways to put more money in the bank, plan monthly expenditures, adjust your plan according to your goals
    4) invest saved money so as to earn a compounding positive return

    If you can’t do any of these steps, then you have a problem and you may need to fix that problem to get on track.

    • Agreed. These people are probably making $110-$130k combined. If they can’t manage to save a few K a month then something is wrong with their financial literacy.

  9. Perfect example of the culture of entitlement around home ownership. Why do people seem to believe that society “owes” them the ability to purchase property?

    With this couple – if they can’t save up enough money for their down payment then they can’t save up enough money to replace their roof when it starts to leak. They can’t save up enough money to buy a new furnace when their old one kicks the bucket. They can’t save up enough money to replace their rotted out deck when it finally goes. They have no business owning a house!!

    That’s what a down payment is supposed to be all about – showing you have the maturity to borrow a VERY large sum of money that is going to take at least a quarter of your lifetime at a minimum to pay back (at least in this market – and that’s conservative!). If you can’t save up a down payment, too bad, you shouldn’t be borrowing hundreds of thousands of dollars. You’ve effectively proven that your finances are so tight that you can’t be trusted to pay back the loan.

    Chances are this couple haven’t taken in to account any of the costs of ownership – things like property taxes would likely receive a blank stare. Closing costs? Just add them to the mortgage! Home owner’s insurance? We don’t really need that, do we? Saving up a home repair fund? Well we can always just cash out some of our “equity” to pay for those kinds of things right?

    This couple would be far better off to sort out SOME kind of savings plan and start socking away as much money as they can, regardless of what they end up using it for. In the end we’re all trying to build wealth – a good way to start is by spending less than you earn!

    • All good points.
      And thanks for reminding us of the hidden costs of owning.

      If more had followed these guidelines, far fewer would have overreached to buy, and prices would be lower.
      People who are poor savers have been able to purchase because of low interest rates and low downpayment requirements. And rising prices have allowed many to continue their profligate ways.

    • “If you can’t save up a down payment, too bad, you shouldn’t be borrowing hundreds of thousands of dollars”

      What you’ve shown is why owning needs to be cheaper than renting. A family should be able to save for retirement, save for a downpayment, and fully expect that ongoing carrying costs will be lower to compensate for maintenance, depreciation, and risk.

      Many people have pensions so saving for retirement is regimented and limits what they can afford to save for home ownership. With declining pension participation, I’m afraid we have some of the answer to why prices are going higher.

      • On the flip side, Bryn’s points are excellent to teach kids for those who wish to return to a fedual state where landholdings are concentrated and peasants are essentially bound to the land as they can’t afford to buy and have to pay high rents to the landlords which prevents them from saving sufficient capital for financial independences.

      • “landholdings are concentrated and peasants are essentially bound to the land”

        Right now renting is cheaper than owning; who’s the peasant exactly?

  10. One broad issue that we are kinda circling here regards the way in which the speculative mania in housing has affected motivation.

    In more normal times, if a couple like this ‘tightened their belts’ and were able to save $10K or $20K (after tax) per annum, they would be appropriately rewarded: their ‘nest egg’ would grow (even with conservative investments), they would see their savings accumulating, and they would be able to plan how to use their growing wealth: perhaps as a downpayment.
    In the Vancouver environment of the last 5-10 years, even an annual $20K or $30K or $40K saved doesn’t see this couple ‘getting ahead’: their investments would most likely have gone sideways (perhaps even down), and housing prices would be more and more out of reach.
    This is what has happened for those who have attempted prudence; they have been punished by the markets. Massive forces resulting from monetary policy and the speculative mania have encouraged spendthrift ways. In fact, that is precisely what the monetary policy has been designed to do… to get savers to spend.

    • Basement Suite PhD

      Extremely well put on the effects of “emergency” rates extended for a decade. That is exactly what happened to me when I was looking at RE, back in 2005. The longer I looked and the more I saved, the faster prices rose above me. Prudence was punished, while leaping in headfirst was rewarded. I make a good income, and saved a lot, FAST, just not as fast as the RE market then. It’s increasingly clear to me this can’t go on forever though. With those comparison pictures of million-dollar mansions in the States next to million-dollar crack houses in East Van, that gap will eventually close.

      ***
      Disclaimer for the guy with nothing better to do than attack a wannabe PhD economist: Look elsewhere. I am a biostatistician, not a wannabe economist and certainly not a wannabe “quant”. My name on this board is to portray my story, a well-educated high earner living in a basement suite due to Vancouver real estate prices. So get over it.

  11. Holy shit. This couple makes more than we do, and pays less in rent. We have two kids who do gymnastics, music, swimming, soccer, etc. and can still save 15-20k a year. They need to take a hard look at their frivolous spending before making such spurious “pity me” statements.

    Being able to save is not an asset, though, without appropriate education about the dangers of the present financial world. Being financially illiterate, we bought in to mutual funds after being pestered by financial “advisers” who showed us how, over the past 40 years, the markets have all returned an average of 5%. Well, in 2008, the first of our savings got decimated. I felt like such a sucker. We left them in to recoup while adding a steady trickle more, until April of this year when I tried to argue with the financial adviser to pull them out as I believed we had topped. I was not strong enough, and deferred to their “wiser” counsel to keep them in there to avoid paying the redemption fees. Come July, and I march in and say I want it out NOW. Suddenly, magically, the option to put it into “money markets” with the same mutual fund companies top avoid the redemption fees comes up. I am assured that they will make 1% interest. I check out the funds that they moved the money into, and discover that they have been returning an average of 0.00% since 2009.

    Doing the math, redemption fees will still cost a couple of years worth of interest compared with what we can get from a 1.9% GIC. Not having the time to pick and choose investments myself, I have no choice now but to either a) pull out, put them in a GIC and wait for the break even point before we start earning interest once again or b) let them sit earning 0% while I wait for the markets to bottom; then, we hopefully get to ride the wave back up if such a thing will ever occur again.

    This year, we have been paying off the car instead of adding to savings, despite the low interest rate of the loan. We can clear it entirely by next summer. As for saving any more: I am so disillusioned, and feel completely betrayed by the system. We were doing the “right” thing, and all it has done has cost us hours of leisure time and, importantly, holidays and visits to my parents overseas who have not even met our youngest. Our savings are now pretty much the same dollar amount that we have put in, after management fees, while food and gas grow in cost.

    Words fail me when I try to describe the turmoil of anguish this has caused. I try to relax and spend more, and to work less, but it is hard to change old habits. I can’t stand holding any debt, and want to clear the car payments before I feel we can take a step back and ease up. The new car to transport the kids after our second was born was our one luxury, which I regret; we are one-foot-in in plans to trade it in for a smaller and older model to eliminate the payments altogether. Then, in theory, we will relax and try to enjoy life instead of viewing it as a struggle to pile together cash….. which we now know is just pissing money into the pockets of wall street. Might as well live for today. Or eat the losses and keep at least some capital to pick up the pieces after the deleveraging… I can’t help believing that we, too, will lose our shirts just the same as any fools who took a zero down and overextended and maxed out their credit cards. What am I supposed to do? start buying and stashing gold coins under the mattress? what?

    Who are the fools? us, or the above couple??

    • I know how you feel exactly. I have resolved to just ignore the financial system and live by my principles even though it is seems like the wrong thing to do. I like being responsible so I will do that even if people around me are not, at least when I die I can look back at my life and have no regrets. Who know how this whole thing is going to turn out.

    • Royce McCutcheon

      Maybe you’re a fool… but only for not being born earlier. 🙂

      My wife and I struggle with knowing where to put money as well. We earn well and sock away good coin each month (have both been in the workforce for a couple years now). We first built up an emergency cash fund and set that aside which was easy to do as it was simply an exercise in accumulating money and no thought was required beyond picking a bank with a high interest rate. Now… I’m still trying to figure out what to do. I don’t like that my savings can lose ground to inflation by staying in cash but I also have a hard time seeing where else I should park my money (forays into other types of investments… I can’t help but feel like I’m being set up to be the sucker at the poker table).

      We’re lucky insofar as our incomes are high and have actually been rising enough to even outstrip new expenses from a growing family. I’ve seen it said a few times that when you’re young you should invest in yourself as this represents the best means young people have for building wealth. I guess that’s held true for me in the sense that I worked hard to build a well-paying career (in theory I could have earned minimum wage ducats and put energy into learning how to invest those lesser sums to make bigger money outside of myself). Still, at the end of that, it sucks that the goal of even wealth PRESERVATION doesn’t feel straightforward.

      Maybe an investment strategy targeted to my growing cynicism is the way to go. I find I’m having less and less faith in people. Perhaps someone has tips on investing in companies that will build ordnance for our coming wars or provide money at usurious interest rates?

      TPFKAA: could moving be on the agenda? I’m not some GTFO bull – I don’t like the thought of an exodus of young families from here at all – but maybe that move would constitute the best “investment in yourself” you guys could make? I mean, you may be avoiding exposure to real estate insanity by renting, but how much is staying here still costing you regardless (I can’t recall the specific circumstances for yourself you’ve mentioned here in the past – sorry). What would >$1250/mo for housing (whether for renting or owning costs) get you in another part of Canada or in the US? Could you possibly see more salary in a move to another area (thus giving yourself more savings)? Those changes could have a huge impact on your quality of life and make things like the piddling return on a savings account or GICs much more tolerable (given that your life might more closely resemble what you want anyways).

      • Hi Royce,

        Thanks for sharing your story. It is good to hear there are others in a similar situation. I am not greedy for passive income: all I want is preservation, and as you say, that is not simple. I am gutted that if we had just stuffed our money “into the orange guy’s shorts” as Garth puts it instead of trying to do what every financial “adviser” said which was bonds and equities – we would now be far ahead. Actually, that’s what I would love to do now, is to just stuff it into a high interest savings, and forget about any “gains”. As long as we have enough to put food on the table and a roof over our heads for a while if we lose our jobs, then that’s ok. But it’s not even clear any more that keeping cash will ensure that. The governments’ response to the debt crisis so far all point toward currency debasement leading to hyperinflation (after some asset deflation along the way).

        I hate usury.

        I thought about what you say, about earning more so that we don’t need to worry about the losses. I feel our lifestyle is adequate, we are fortunate to live in what amounts to a relative time of plenty (of excess, in actual fact). I would be happy to stay at our present income levels forever IF we could have some sense of security about the future. (Home ownership would be nice).

        Moving is not an option – family reasons is the short explanation.

        Investing in self – boy, that has always been on the cards but took a back seat to investing in the wife and then in the kids. I would dearly love to go back to school and finish the engineering degree I started (4.3 GPA in the first semester with not a hint of modesty) but there is the little one to take care of until she starts school. We invested in the wife first; that turned out pretty well. We’ll see how much youth energy I have left in two years; then I may well go and finish what I started- assuming the rising costs haven’t priced out our diminishing savings.

    • For what it’s worth: if you don’t have tons of time to research investments and you still want to manage your own money at low cost then get three things:

      1) high interest savings account linked to your chequing account- sure it only pays 2% or less right now which is below the all items CPI but there’s no fees.

      2)self-directed RSP which you will use to buy Canadian corporate bonds and maybe some munis and provincials when the yield to maturity hits your target yield (be realistic!). Hold to maturity and don’t worry about the mark to market because you should have extremely low default risk if you stay at BBB+

      3)margin account linked to your self-directed RSP and chequing account where you can put extra savings to buy more corporate bonds and boring dividend paying stocks. You will pay minimal fees to buy and sell your investments buy don’t think about selling. Collect your coupons and dividends and forget about the mark to market fluctuations.

      This is the very beginning – now spend the rest of your working life building it. If you learn some things along the way then you might start taking more risk and spending more time trying to optimize your money’s performance. Don’t get cute if you have to work for your money!

      Or you could just give all your money to someone else and hope that it will work out.

      My own personal opinion is that leaving Vancouver also allows one to invest in Real Estate (even if it’s your principal residence) on a similar basis to investing in other types of investment. This is impossible with Vancouver RE because other investment alternatives will always provide a higher return.

      • @Airedales,

        Yet another person to thank deeply and sincerely for taking the time to give me their hard-won knowledge. I will be printing out your comment along with the other posters’ advice in an earlier thread, and taking things from there. What you say appears a really, really good idea.

  12. this couple needs a finalcial advisor rather than bitching about the situation.

  13. We lived for 5 years in a 450 square feet bachelor, with a bathroom across the hall, paying $725 a month rent, and did not buy any new consumer items. We purchased only thrift store furniture and bought cheap cars (old run down VWs) and mostly consignment clothes. No bling. You have to make a decision – bling or buy. We saved a 20% deposit, and now own our first place. Bling or buy baby.

    • Too bad smart guy. You’re about to lose all the money you suffered for to save. Your first place actually is bling, baby.

  14. I’ll bring up two further points: The supplicant refers to the “gouging” cost of a down payment. I think it’s gouging, as your first 7% disappears into the pockets of all those people besides the vendor who are involved in the deal. But I don’t think that’s what the supplicant meant… She just isn’t familiar with the concept of skin in the game.

    Also, her bit equating paying the landlord’s mortgage with being able to pay her own: If one’s landlord bought a decade ago, it’s very likely that one’s rent covers the mortgage payment, expenses and a bit extra, while still being far less than today’s PITI on the same place at today’s prices.

  15. This is an example of generation F@%#@. they want it all!

  16. Royce McCutcheon

    A question: putting aside whether it is right or wrong to feel this way, if a young person you paid to train via taxes is 1) trained to do a job your city needs done, 2) feels they’re not getting what they want, and 3) will likely start looking elsewhere to see if they can get a better deal… do you think it’s productive to make generalizations about them having a sense of entitlement? Particularly, if we take your (new?) handle to be accurate, the concern these young people have is that they probably won’t ever achieve what others before them were able to achieve? I’m speaking generally – not about the couple in the article per se – as your post seems to suggest you think there’s a generation that “wants it all”.

  17. Sorry, Royce, we did’nt want it all…having moved to Calgary initially because my wife wanted a job in her field, and got offered a great position in Calgary with a 25% higher salary than Vancouver. We moved because there were no jobs in her field, that was 8 years ago and things are worse now. It was not about being “entitled”, but rather doing something you have spent ‘x’ number of years in university for. I do see many young people wanting to live a rock star lifestyle driving cars worth 40-50 grand and they are in university. But I do agree, it is just bad timing for people starting out now – they got screwed with the recession, and they missed all the real estate hype.

  18. Our generation does not have that sense of entitlement Calguy is alluding to. Sense of entitlement is wanting something without being prepared to put in the work that is required. Spending several years in university or learning a trade means that I am prepared to put in the hard work required to learn a profession that can offer me a lifestyle with modecum of decency. What is wrong with an engineer wanting to buy a 1500sqf rancher he can raise his family in.

    If previous generations got all these things then what is wrong with us also getting the necessities of life. I have always stated that we do not want to buy houses in Point Grey or West Van (at least not during our early careers). That starter home in Surrey or East Van should be within our means.

    Before some baby boomers start accusing us of having a sense of entitlement they should look in the mirror and and see the face that has destroyed the middle class through sheer greed. After WW2 our grandparents built suburbia on Average Joe factory labour wages (usually on one income). Our grandparents were able to comfortably pay for our parent’s generation college tuition so that those spoiled boomers could work less during college and spend more time getting hammered in frat parties. Who felt entitled to multi million dollar bonuses and stock options at the expense of the economy? If that’s not entitlement then I do not know the definition of the term.

    This couple earns at least $100-120k based on their job descriptions. In any other North American city that would be classified as middle class. Actually, in cheaper places like the sunbelt or Atlantic Canada that even puts you into the upper middle class.

    Logically, someone will find it easier to just relocate to a city where their dollar stretches a bit further – something I would urge this couple to do. The biggest loser in all of this will be BC taxpayers who have funded the education of these youngsters. I guess Alberta could easily shut down its post secondary institutions since BC will be more than willing to furnish them with new grads. I for one will be leaving BC in the coming new year and plying my trade in a place where I feel more appreciated and my kids can enjoy a better quality of life. With the real estate prices in the cities I have been interviewing for jobs, I will probably be buying my little McMansion in the summer of 2012. Screw this raising kids in a condo business.

    • ah, good old days…where hath ye gone?

    • Nicely put! I find a lot of the people who are accusing the young generation of lazy, entitled, self-centered, etc generally exhibit more of these trends than the young people they accuse. I think I learned it in psychology 100 that people tend to project their shortcomings onto others people and then victimize them so they can feel good about themselves.

      I mean can any young people get an auto factory job paying $45/hr with no university education anymore??

  19. That starter home in Surrey or East Van should be within our means.

    Are you saying you can’t afford a home in Surrey with an engineer’s salary? This statement is highly doubtful.

    • Royce McCutcheon

      Perhaps “responsibly afford” would be a better term? A very good household income might make ownership of a ‘starter home’ possible at those locations, but after a full accounting of all ownership costs, there might not be enough leftover for a contingency fund, retirement savings, food, etc.

  20. My cousin and his wife and two small children live in South Surrey/Cloverdale. They each earn about average salaries, maybe a bit more. In many ways they are almost exactly what one might think of when thinking “average young family”.

    They have a medium-sized house in a new development (on a postage stamp sized lot). It is a bit of a financial burden and they could probably afford a home 30% larger on a much bigger lot in Mississauga (the “Surrey” of the GTA). Of course this is their second home: they owned a downtown condo until the children were born.

    Their biggest gripe is the travel time to work – my cousin works near city hall and either has to drive all the way in or drive to the express bus that takes him to the Canada Line.

    I haven’t asked them how much they paid for their home, but it is likely considerably more than a “starter” townhouse in Mississauga (which goes for about 285K). I therefore conclude that to find an affordable SFH in Vancouver one’s only choice is to look at the periphery.

    • This doesn’t sound like a good quality of life in Vancouver for your friends or anyone who have a choice between Vancouver, Ontario, or West Coast US.

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