Finishing off the fourth quarter of 2021, the median sale price for a single-detached home in Ottawa rose to $681,000 and $550,000 for a townhouse or row-unit. These are big numbers for anyone to wrap their head around. That’s why this month’s client story shows how we can help break down what you need to do in order to save for a home!
Glen and Candice are a couple living in Ottawa saving up to buy their first home. They changed their lifestyle so that they could pay down their debt and start to save. Now, for the first time in their lives, they are debt-free! Glen and Candice came to us to assess their file and help them build a plan to buy their first home.
Glen makes about $52K a year in gross income as a delivery driver. Glen does have the opportunity to work overtime and take on extra roots but this was his average base salary. Candice is a civil engineer working in a private firm making a salary of $72K a year in gross income. Their decision to pay down debt was the right choice for them but now they have to take the next step and start building their savings for their down payment.
Although we qualify them on their gross income, we have to remember that they can only spend their net income. Glen brings home a net income of $40,568 (at a 22% tax rate), while Jane brings home $54,105 (at a 24.9% tax rate) net income. Together, they have a net household income of $94,673 and hoped to find a home they like for around $600K. We did the math to show them on a $600K home, they would need a minimum down payment of $35K plus an additional $9K for closing costs.
Next, we had to help them find a way to save $44K. How can they do that? The 50-20-30 rule! Using the 50-20-30 rule, Glen and Candice would budget…
- 50% of their income for essentials (e.g. housing, utilities, groceries, etc.)
- 20% would go towards savings using an automated withdrawal system through their bank (they even considered increasing this amount since they had already paid off their debt)
- 30% for everything else
Using their monthly net income of $7,889, this meant…
- $3,944 for essentials
- $1,578 for savings
- $2,367 for everything
By following this rule, they could easily save enough for their down payment and closing costs in less than two and a half years (27-28 months). Saving $1,578 would also get Glen and Candice accustomed to not having that money at their disposal, making the transition to a mortgage an easy one. After two years and three months, they came back to us and we got them an amazing rate on their mortgage through one of our A lenders!
Everyone’s situation (and budget!) is different. Contact the Kyle Miller Mortgage Agent team if you’re interested in saving up for a home and need a plan. We’ll help you understand everything that’s involved in the home purchasing process while finding accommodating ways to save!
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