Over the past few weeks, we’ve looked at the various techniques and strategies available to you, to help you get ready to purchase your first home. To end our month dedicated to first-time buyers on a high note, we’ve provided an informative case study below. This case study provides a step-by-step look at the various components of financial planning.  

Let’s jump right in and take a closer look at the purchase of Mr. and Mrs. Dupuis’ first home.  

Our customers

Here are the mock customer profiles used for this case study.

  • Annual income, Mrs. Dupuis: 100,000
  • Annual income, Mr. Dupuis: $55,000
  • Marital status: common-law spouses
  • Current financial obligations, Mrs. Dupuis:
    • Vehicle : 600$/month 
    • Rent : 1000$/month 
  • Current financial obligations, Mr. Dupuis:
    • Rent : 1000$/month 
  • Assets Mrs. Dupuis : 
    • TFSA : 10 000$ 
    • RRSP : 45 000$ 
  • Personnal Assets Mr. Dupuis :  
    • RFSA : 10 000$ 
    • RRSP : 3 500$ 

Step 1 – Maximize savings 

We recommend starting this step a full year before purchasing a home.

Now that Mr. and Mrs. Dupuis are ready to begin the process, they need to assess their individual savings capacity, for the coming year. Their goal over the next few months is to maximize their down payment, with a view to purchasing their first home. We know that Mrs. Dupuis can set aside $1,000/month, and that Mr. Dupuis can set aside $500/month. To arrive at this amount, we evaluated their income and subtracted their cost of living.

Step 2 – Determine a reasonable loan amount

The couple need to evaluate their borrowing capacity in relation to their current situation. At this point, they can work with a mortgage broker to get a mortgage pre-approved. Pre-approval is different from pre-qualification, because it will have no impact on their credit rating.

The couple learns that their borrowing capacity exceeds $600,000. At this point, it’s important to remember that their borrowing capacity is evaluated using gross salary, rather than net, after-tax salary. Borrowing the full amount suggested by the lender is not recommended, as this could make their budget very tight.

The couple decides to look for a house with a market value between $400,000 and $500,000.

At this stage, the couple needs to determine how much of a down payment they want to make. The minimum required down payment is 5%. They’ll also need to set aside another 1.5% of the purchased home’s market value to cover other purchase-related expenses such as hiring the notary and the building inspector, and paying transfer fees and moving costs, as well as others.

Step 3 – The different investment vehicles for down payments

For more information about TFSAs, read our article on the topic.

For our case study, each member of the couple is eligible for, and should open, a TFSA account. The couple can each contribute $8,000 in 2023, to maximize their TFSA and their accumulation strategy.

They can also use their RRSP to set up an HBP loan. The maximum amount each of them will be able to withdraw is $35,000. For more information about the HBP, please refer to our post on the topic.

What the couple contributes to their down payment:

  • Mrs. Dupuis : 
    • Transfer of $8,000 from her TFSA to her FHSA
    • Draw $35,000 from her RRSP under the HBP
  • Mr. Dupuis : 
    • Transfer of $8,000 from his TFSA to his FHSA
    • Draw $3,500 under the HBP

The home the couple has set their sights on is on the market for $475,000. By using most of their savings, they will be able to move ahead with a 10% down payment. They also opt to keep some cash on hand as a contingency fund.

Step 4 – Finding the right home and making the purchase offer

Now that the couple knows their loan amount, down payment, and other expenses, they’re ready to start looking. Mr. and Mrs. Dupuis were very lucky and found their home very quickly, even more quickly than expected. This prevents them from maximizing their savings for the coming year. As a result, they’ll have to move forward using the down payment they currently have on hand.

The couple prepares to make an offer on the house with the help of both their mortgage broker who will prepare the necessary documents and of their real estate broker who will make the purchase offer on the couples’ behalf. At this stage, their offer may be accepted, accepted with conditions, or rejected.

 The couple is very fortunate: their offer is accepted without any additions to the initially established conditions. Now that the official home-buying process has started, they may also wish to call in a building inspector to make sure there are no major problems with the house.

Step 5 – Securing a mortgage

Once you’ve chosen your home, it’s time to choose your mortgage. Your mortgage broker will be your greatest asset at this stage. They can help you find the loan that suits your needs and suits the home you’re buying. Once a lender has been chosen and the documents signed, a letter of approval will be sent to Mr. and Mrs. Dupuis. Instructions for the sale will be sent to the notary that the buyer has selected. Your mortgage broker will do all of this.

Step 6 – Down payment withdrawal meeting with your financial planner  

Since your down payment must be forwarded to the notary prior to completion of the sale, the strategy set up by your financial planner should, at this point, lead to an HBP withdrawal or HBP loan and/or a TFSA and/or LIRA withdrawal. For more information on down payment strategies, please see our previous articles on the topic.

Step 7 – Taking out mandatory damage insurance on your new home 

The notary will ask you to bring proof of home insurance to your meeting with them, so applying for and getting this kind of insurance is an important step. The choice of insurer is up to you, provided they are able to handle your insurance needs.

Step 8 – Meeting with your notary 

This will be the last step our couple takes before getting the keys to their new home. The notary will handle:

  • All necessary title deed reviews and checks
  • Allocation calculations and adjustments (e.g., municipal and school taxes)
  • Receipt of your down payment for the purchase
  • Paying the seller of the house using the mortgage that you have with the bank  
  • And much more!

Our couple will need to meet with the notary a second time to close the sale, receive all required information and finally sign for the purchase of their new home.

Step 9 – Insurance meeting with your financial planner

The home has been purchased, and the couple prepares to move into their new residence.

They’ve taken out fire, theft, and other types of insurance to protect their new asset, but have they thought about the other risks that might cause them to lose their home?

If either spouse were to die prematurely, the mortgage would likely be too great a burden for the surviving spouse to handle. If either of them became disabled, would the couple be able to make their long-term mortgage payment?

It’s important that the couple, with their financial planner’s help, learn whether they are exposed to certain financial risks, and whether taking out life and/or disability insurance might be a way to solve this problem. In our couple’s case, they each decided to purchase 20 years of term life insurance worth $500,000 to cover costs in the event of death. Their respective group insurance plans adequately covered the risk of long-term disability.

We hope this case study has helped you to better understand the steps you’ll need to take on the road to home ownership. As financial planners, it’s also our job to guide you through these steps. Mrs. and Mr. Dupuis’ case study shows you how we help our customers buy their first home, and realize their dream of home ownership.

To get the financial support you need so you too can realize the dream of owning your first home, feel free to book an appointment with one of our advisors.