Author Topic: Fun Globe & Mail new article: $125k/yr couple faces "looming cash crunch"  (Read 15947 times)

idealized

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Toronto is an expensive place to live. But this provides some unintentional humour -- more bathos than pathos.

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/house-poor-couple-debt/article24370722/


mlipps

  • Handlebar Stache
  • *****
  • Posts: 1061
That stripey wall is so ugly. I can't get past it to read the sob story.

nanu

  • Bristles
  • ***
  • Posts: 345
  • Age: 31
  • Location: Cambridge, MA
Quote
Their house sits on an 11,000-square-foot lot and in addition to repaying some debt, the couple had wanted to put in a pool, as well as landscape and complete the unfinished basement. That was before the baby.

“Until five months ago, reducing debt was the biggest thing we talked about,” Mr. Bhardwaj said.
Quote
Talking about reducing debt while wanting to put in a pool, landscape, and finish the basement. Yeah, that's going to happen...
Am I supposed to feel bad for these idiots or laugh at their stupid mistakes? I can already picture an investor picking up the house at a foreclosure sale a few years from now...

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6177
  • Location: BC
Hmmm,

First off, putting Dad on the title was done to get more $ income approved for the loan (perhaps), but especially to get the property tax rebate for an owner over 65 yrs.

Now, Let's do the math --

Assuming EI will provide the maximum, about $2k per month for her, while on leave, they spend $3k/month on everything, not including the home costs.   So OK, this is not a "fancy" lifestyle if they have a two car commute and all.  About average.

But that means that his $73k/yr job, his take home after tax is about $57,000 (assuming some deductions and employee paid portion of benefits).

So their interest rate must be 6.7% p.a., on 30 years, assuming $7k/yr in property tax, insurance, water and sewer.
That seems very high but maybe not unreasonable if they did not have the best credit situation, being new to Canada 11 years ago only?  Can't have been making a lot.
OR, more likely they have not sold, and are not yet renting out, their townhouse. -- while asking for Dad's pension money...

The problem then:
1) Buying and holding a house for other people to share, who do not contribute to the cost of the home.
2) Buying a home when they have very little equity in their townhouse or more likely, carrying two homes with money tight. 
3) Buying a home without financing approved.
3) Buying a new home that needs $$'s for simple landscaping  (a tree or two in the back yard?)

This is pretty common  -- multi-generational families on title, with the house as the primary savings / investment, and the rest tied up in the small business (if any).


Kris

  • Magnum Stache
  • ******
  • Posts: 3942
"The couple, both of whom work in the financial services industry..."

"When it came time to buy, there was a slight problem in that the Bhardwajs could not afford their dream home. Because they had borrowed money for a second car and incurred other debts, the bank would only give them a mortgage of $650,000, despite their already having purchased their place for roughly $100,000 more."

Oh, for God's sake...

Travis

  • Handlebar Stache
  • *****
  • Posts: 2371
  • Location: Arizona
Holy sh!t, you can play a soccer game in that back yard.  I'm confused on their timing.  They bought this monster to fit them and their in-laws, but the families aren't ready to move in and contribute? They also bought this "forever" house but didn't plan on a baby? 
I'm also trying not to laugh at the financial comparison of a pool, landscaping, and finishing the basement with their baby.  "We were going to spend another $50k or so adding to our new house, but we can't do it - we need to buy a stroller now."  That last paragraph makes it sound like their search for baby supplies is comparable to buying a new car.  Is this crib they need gold plated? Also, why are they even featured in this article?  He says that he stands by his decisions and they can handle it.  I really hope his final thoughts are about just the baby and not his financial future.

Quote
Because they had borrowed money for a second car and incurred other debts, the bank would only give them a mortgage of $650,000, despite their already having purchased their place for roughly $100,000 more.

I'm not Canadian so I don't understand this. How did they "buy" the house without a loan that could cover the price?  In the US, the mortgage and the "purchase" are pretty much the same thing. 


nanu

  • Bristles
  • ***
  • Posts: 345
  • Age: 31
  • Location: Cambridge, MA
I'm not Canadian so I don't understand this. How did they "buy" the house without a loan that could cover the price?  In the US, the mortgage and the "purchase" are pretty much the same thing. 
Not sure how it works in the US, but in Israel you'd often sign the paperwork (i.e. a contract saying how much you'll pay for the house) before actually having the money
and then have a few weeks to actually pay. Most people wait until the bank approves the mortgage before signing, but guess some people screw that up...

nereo

  • Senior Mustachian
  • ********
  • Posts: 10042
  • Location: la belle province
    • Here's how you can support science today:
Quote
we knew that with the income we had we would basically just survive.”

Oh good lord.  Someone (actually many differnt people) needed to tell these people they could not afford all of the things they were buying.  Cars on credit, jumbo mortgage they couldn't even qualify for alone, sizable cc debt... Hope they come here and start digging themselves out of this pit.

Sigh


zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
I'm not Canadian so I don't understand this. How did they "buy" the house without a loan that could cover the price?  In the US, the mortgage and the "purchase" are pretty much the same thing. 
Not sure how it works in the US, but in Israel you'd often sign the paperwork (i.e. a contract saying how much you'll pay for the house) before actually having the money
and then have a few weeks to actually pay. Most people wait until the bank approves the mortgage before signing, but guess some people screw that up...
The wording sounds misleading. It is possible to sign a purchase contract without having financing lined up, but it's not possible to complete a purchase without the funds actually changing hands (which implies the funds exist, be it cash or a loan).

Many purchase contracts are written to be contingent on buyer obtaining financing, but this does add risk for the seller. Usually they either require written proof of pre-approval, or at a minimum they specify a short period (say 5 business days) to apply for financing.

Any smart buyer would have it before making an offer, and any smart agent would push them to do so, but it sounds like there wasn't a lot of smart going on here.

James

  • Handlebar Stache
  • *****
  • Posts: 1680
  • Age: 46
  • Location: Rice Lake, WI
"The couple, both of whom work in the financial services industry..."


I just can't get past the idea that we have two professionals who work in finances who are horrible with finances.


Not sure if the article was funny or sad, but it sure made me shake my head. Of course if the market for homes goes up and inflation is high they could do fine despite the stupidity. But it is much more likely they will simply borrow against the house their whole life long and never own it, essentially just renting it from the bank and squandering any equity. Eventually the house will need repairs and updates, which will eat up any equity they might build. But the worst case scenario is so much worse. Imagine the housing collapse that affected homes like that in the US, some dropped in value by more than half. But then they would probably just walk away from the house after living there a year or two without paying their mortgage...

plainjane

  • Handlebar Stache
  • *****
  • Posts: 1668
Quote
Because they had borrowed money for a second car and incurred other debts, the bank would only give them a mortgage of $650,000, despite their already having purchased their place for roughly $100,000 more.
I'm not Canadian so I don't understand this. How did they "buy" the house without a loan that could cover the price?  In the US, the mortgage and the "purchase" are pretty much the same thing.

I'm guessing they got pre-approved for a certain amount, and so signed the contact thinking they'd have no trouble getting the mortgage.  But in the meantime they'd added to their debt load, so they couldn't get as big a mortgage as they initially anticipated (because the bank would take the additional debt payments into account when calculating the maximum they would lend).  Which is something you'd think people in the financial industry would have anticipated.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
All I can think of is how their employers must love them, workers that are stretched thin likely are going to be very motivated.

RunHappy

  • Pencil Stache
  • ****
  • Posts: 561
I hope they are not financial advisors.

Tjat

  • Pencil Stache
  • ****
  • Posts: 561
I've been a lurker, but had to register after reading this article. Seeing this situation and how willingly foolish these people are makes me sick to my stomach

Melanie A

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Is it possible it was a new build? When I purchased a home through a builder, you didn't have to get pre-approved for a mortgage, it was up to you to get it approved before signing the contract.

That article also made me shake my head. I know people who work in the financial industry who are the worst spenders. And some people don't understand even if you get pre-approved for a mortgage, it doesn't mean you should go out and buy a house at that price or can even afford it. I'm sure there's a lot of people who don't do the math including utilities and maintenance costs of owning a house.

paddedhat

  • Handlebar Stache
  • *****
  • Posts: 2229
I live in a new home I just finished. It has twice the land, it's 1/3rd the size, less than 1/6th the cost, and it's paid for. FFS, if I was in that guy's shoes, I would spend every waking moment actively resisting the urge to swallow a bullet. That is probably the best definition of a wage slave I ever encountered. The guy is flat out trapped, and he still thinks it's been a good decision. How sad.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
I just can't get past the idea that we have two professionals who work in finances who are horrible with finances.
Lurk here a while more and you'll find it's more common than you'd ever imagine. Overheard At Work is full of those stories.

I'm guessing they got pre-approved for a certain amount, and so signed the contact thinking they'd have no trouble getting the mortgage.  But in the meantime they'd added to their debt load, so they couldn't get as big a mortgage as they initially anticipated (because the bank would take the additional debt payments into account when calculating the maximum they would lend).  Which is something you'd think people in the financial industry would have anticipated.
That's probably the most likely scenario.

I'm amazed they were even approved for $650K, and equally amazed that they thought it was a good idea. The primary breadwinner is paying his entire take-home pay on the mortgage, a predictable result based on the numbers. What underwriter signed off on that? I mean, even if I were dumb enough to try, I'd get denied for this much financing. And rightly so.

Merrie

  • Bristles
  • ***
  • Posts: 461
  • Location: Midwest
Quote
I'm amazed they were even approved for $650K, and equally amazed that they thought it was a good idea. The primary breadwinner is paying his entire take-home pay on the mortgage, a predictable result based on the numbers. What underwriter signed off on that? I mean, even if I were dumb enough to try, I'd get denied for this much financing. And rightly so.

Yeah, that's the part I don't get. We make around the same amount as them and our mortgage is 1/3 as much. No way could we have been preapproved for anywhere near that much. And I'm baffled as to how they thought this was a good idea.

vivophoenix

  • Bristles
  • ***
  • Posts: 430
remember the father in law is on the mortgage.
they make it seem like the qualified at first and then bought the car and needed the father. im willing to bet they needed the father to start with.
they probably look great credit wise. sounds like no student loans, no kids which means three paychecks which in theory could be dedicated to the mortgage.
« Last Edit: May 13, 2015, 12:52:54 PM by vivophoenix »

Merrie

  • Bristles
  • ***
  • Posts: 461
  • Location: Midwest
But he has only a $500 pension? Or is the other father a zillionaire and I missed it? Thought they got approved for $650k based only on their two incomes. I mean, we got approved for $250k with roughly the same incomes. *head scratch*.

vivophoenix

  • Bristles
  • ***
  • Posts: 430
But he has only a $500 pension? Or is the other father a zillionaire and I missed it? Thought they got approved for $650k based only on their two incomes. I mean, we got approved for $250k with roughly the same incomes. *head scratch*.

no he said hed give them 500 of his pension, which i could be wrong, but  sounds like that's what hes willing to contribute not what he has


vivophoenix

  • Bristles
  • ***
  • Posts: 430
how do people manage to buy multiple rental properties when they still own a home?

do they tell the banks that they are going to sell the current home, or say they are going to rent it?

i ask because i wonder if they partially got approved under the assumption that they would be selling the starter home?

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
how do people manage to buy multiple rental properties when they still own a home?

do they tell the banks that they are going to sell the current home, or say they are going to rent it?

i ask because i wonder if they partially got approved under the assumption that they would be selling the starter home?

This isn't first-hand experience, but from people I know that have a mortgage on their residence and own rental properties (with a mortgage), they made it perfectly clear to the lenders that the rentals would be used for rental purposes. They pay a higher interest rate, but that's about it. Of course, they can show how much returns they are getting and so the banks are happy with the risk, but I don't know.

Some of the books I've read about real-estate indicate how many investors avoid banks as much as they can and buy homes with alternate finances. I don't understand it, and if I ever do buy a rental, it likely will be with a mortgage.

Dicey

  • Walrus Stache
  • *******
  • Posts: 9715
  • Age: 61
  • Location: NorCal
I always thought that Canada had stricter lending laws and that it it was the Americans who were stupid and profligate. This couple bought a house that cost nearly six times their combined gross incomes? WTF? I have zero sympathy for their situation.

Travis

  • Handlebar Stache
  • *****
  • Posts: 2371
  • Location: Arizona
Quote
I'm amazed they were even approved for $650K, and equally amazed that they thought it was a good idea. The primary breadwinner is paying his entire take-home pay on the mortgage, a predictable result based on the numbers. What underwriter signed off on that? I mean, even if I were dumb enough to try, I'd get denied for this much financing. And rightly so.

Yeah, that's the part I don't get. We make around the same amount as them and our mortgage is 1/3 as much. No way could we have been preapproved for anywhere near that much. And I'm baffled as to how they thought this was a good idea.

Agreed on headscratching the underwriting.  Before they even showed up to negotiate the loan they had a debt/income ratio of 31%.  If I remember correctly, that's the maximum that financial and real estate planners recommend here in the US just for a mortgage.  70% of their entire disposable income is geared towards mortgage, credit debt, and car payments.  How on Earth can they say one of their goals is "reduce debt?"  Even when she's working I don't see how they'd ever get out of it.  I suppose the silver lining is they seem to be putting about 10% into retirement.

nereo

  • Senior Mustachian
  • ********
  • Posts: 10042
  • Location: la belle province
    • Here's how you can support science today:
I always thought that Canada had stricter lending laws and that it it was the Americans who were stupid and profligate. This couple bought a house that cost nearly six times their combined gross incomes? WTF? I have zero sympathy for their situation.
Sadly, Canadians are just as debt-leveraged as their US counterparts - household debt-to-income hit 163% last quarter (a record).  The US has actually seen its household debt fall while it has marched steadily upward in Canada.  It's a trend that really worries me.

http://business.financialpost.com/personal-finance/debt/canada-household-debt-ratio-hits-new-record-of-163-3

Kris

  • Magnum Stache
  • ******
  • Posts: 3942
And some people don't understand even if you get pre-approved for a mortgage, it doesn't mean you should go out and buy a house at that price or can even afford it. I'm sure there's a lot of people who don't do the math including utilities and maintenance costs of owning a house.

This floors me, too.  It would never have occurred to me, even when I was young and dumb, to take a bank's word for how much house I could afford.  When I bought my first house, I thought about how much of a mortgage payment I wanted, max, and then used that to calculate the amount of house I could have.  It never occurred to me to do it any other way.

My husband, when I met him, was drowning in a mortgage that was way, way more than he could afford.  When we got serious enough that I started helping him with his finances, I asked him bluntly, "What were you thinking, taking on this much monthly mortgage payment?" He said, "I dunno, the bank told me that's how much I could afford."  When I told him that the bank just wanted to get as money out of him as possible and that he let himself be screwed, he looked at me like I had two heads.  And my husband is an engineer, and quite frankly a genius -- WAY smarter than I am in most areas.  It was a real wake-up moment for me, that just because you're "smart" doesn't mean you have a clue about how to think about money.

Sid Hoffman

  • Pencil Stache
  • ****
  • Posts: 743
  • Location: Southwest USA
I knew someone with the last name Bhardwaja.  She was terrible with money and in spite of driving an old Nissan Sentra and living with her parents while making about $90,000/year, she was always broke.  I found out after a while that she actually was using two bedrooms at her parents house, not just one.  The reason?  The second bedroom was entirely dedicated to being a wardrobe for all the clothes she owned, in addition to all the clothes in her primary bedroom and closets.  She constantly whined about the cultural requirement to buy all this stuff she owned.  It was terrible.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
He said, "I dunno, the bank told me that's how much I could afford."  When I told him that the bank just wanted to get as money out of him as possible and that he let himself be screwed, he looked at me like I had two heads.  And my husband is an engineer, and quite frankly a genius -- WAY smarter than I am in most areas.  It was a real wake-up moment for me, that just because you're "smart" doesn't mean you have a clue about how to think about money.

A good friend of mine's bf is an engineer and is looking at homes that are very highly priced, even for the Twin Cities market. Many of the homes are 3000 square feet. I suspect that he's been tailoring his search based on the amount of mortgage he can get.

Kris

  • Magnum Stache
  • ******
  • Posts: 3942
He said, "I dunno, the bank told me that's how much I could afford."  When I told him that the bank just wanted to get as money out of him as possible and that he let himself be screwed, he looked at me like I had two heads.  And my husband is an engineer, and quite frankly a genius -- WAY smarter than I am in most areas.  It was a real wake-up moment for me, that just because you're "smart" doesn't mean you have a clue about how to think about money.

A good friend of mine's bf is an engineer and is looking at homes that are very highly priced, even for the Twin Cities market. Many of the homes are 3000 square feet. I suspect that he's been tailoring his search based on the amount of mortgage he can get.

How does your friend feel about it (assuming he/she thinks it's his/her business)?

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
He said, "I dunno, the bank told me that's how much I could afford."  When I told him that the bank just wanted to get as money out of him as possible and that he let himself be screwed, he looked at me like I had two heads.  And my husband is an engineer, and quite frankly a genius -- WAY smarter than I am in most areas.  It was a real wake-up moment for me, that just because you're "smart" doesn't mean you have a clue about how to think about money.

A good friend of mine's bf is an engineer and is looking at homes that are very highly priced, even for the Twin Cities market. Many of the homes are 3000 square feet. I suspect that he's been tailoring his search based on the amount of mortgage he can get.

How does your friend feel about it (assuming he/she thinks it's his/her business)?

She approves and was showing me the listings. They are fairly close, I don't know for sure but I think he's taking her to see some of them.

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
They'll eventually just cry and complain, "I didn't knoooow!  Nooobody told me!"  Same way people do with student debt.  It's greed and entitlement.  Greed to have a house you can't afford in a town you can't afford.  Then have a baby you can't afford.

If Apple invented really cool flying iSaucers we could fly to work and which cost $97000, how long do you think these people could hold out until they decided they "needed one" and took out another loan on top of the ridiculous amount they already bitch about?  I'd give it less than a month.  And how much you wanna bet that they wouldn't take the basic model? 

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
They'll eventually just cry and complain, "I didn't knoooow!  Nooobody told me!"  Same way people do with student debt.  It's greed and entitlement.  Greed to have a house you can't afford in a town you can't afford.  Then have a baby you can't afford.

If Apple invented really cool flying iSaucers we could fly to work and which cost $97000, how long do you think these people could hold out until they decided they "needed one" and took out another loan on top of the ridiculous amount they already bitch about?  I'd give it less than a month.  And how much you wanna bet that they wouldn't take the basic model?

If they made a way to commute and travel by flying and it cost $97,000, I would be in line to buy one. At the least I could put it on Ebay as I'm sure that demand would be through the roof.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Some of the books I've read about real-estate indicate how many investors avoid banks as much as they can and buy homes with alternate finances. I don't understand it, and if I ever do buy a rental, it likely will be with a mortgage.
Yes, rates run 2-3% higher on investment mortgages, which is why it can be better to buy, live in a property, and then rent it out and buy/move into another. I currently have two rentals acquired that way. Inside my LLC (1/3 partner) however, we have to go commercial up front since the company doesn't have a "residence".
Most banks now limit you to four (4) mortgages, which is well below the property count some people want. My guess is the alternate financing is more about leaving those 4 available for must-have scenarios, as well as avoiding credit inquiries.

Agreed on headscratching the underwriting.  Before they even showed up to negotiate the loan they had a debt/income ratio of 31%.  If I remember correctly, that's the maximum that financial and real estate planners recommend here in the US just for a mortgage.
Totals vary by program but in the loosest years pre-crash it topped out at around 50%. Most programs now are more like, 30% for the mortgage, 40-45% total with all other debt (last I looked).

A good friend of mine's bf is an engineer and is looking at homes that are very highly priced, even for the Twin Cities market. Many of the homes are 3000 square feet. I suspect that he's been tailoring his search based on the amount of mortgage he can get.
It's funny, back in 2010 when I was single and earning ~100K, my agent (not really mine, the builder's agent) gave me all this crap for "only" paying $170K for a 1900SF, 3BR/2BA townhouse because I could have easily qualified for $250K or more to build a 3000SF detached home in the same spot. The irony is, this is the house my wife and I have finally turned into a rental (which was my ultimate plan) and one of the biggest factors was that we barely used half the space.
My first house was even bigger (though cheaper) but eventually I figured out that paying more just to have more stuff to clean, maintain, heat, cool, and pay taxes on, is just dumb. Back to this couple and their insanely huge cash sink - I feel for them, only because none of us were born knowing how incredibly dumb this shit is. But it's still incredibly dumb shit all the same.

Kris

  • Magnum Stache
  • ******
  • Posts: 3942

It's funny, back in 2010 when I was single and earning ~100K, my agent (not really mine, the builder's agent) gave me all this crap for "only" paying $170K for a 1900SF, 3BR/2BA townhouse because I could have easily qualified for $250K or more to build a 3000SF detached home in the same spot. The irony is, this is the house my wife and I have finally turned into a rental (which was my ultimate plan) and one of the biggest factors was that we barely used half the space.
My first house was even bigger (though cheaper) but eventually I figured out that paying more just to have more stuff to clean, maintain, heat, cool, and pay taxes on, is just dumb. Back to this couple and their insanely huge cash sink - I feel for them, only because none of us were born knowing how incredibly dumb this shit is. But it's still incredibly dumb shit all the same.

When my ex-husband and I bought our first house, in 2002, neither of us had ever owned property before.  I got a recommendation for a realtor from a woman I barely knew, just based on a chat that we had and the fact that we wanted to move to "St. Paul," which is where she lived. Now, St. Paul, like any other city, has a wide variety of neighborhoods...  But whatever.  I called the realtor and said I was an acquaintance of Ms. X, who had referred me to the realtor.  The realtor was very enthusiastic to meet me. Well, it turns out that this was kind of the "realtor to the stars" in St. Paul.  She is probably the best-known realtor for the fancy historic area (Summit Avenue, for those of you who know St. Paul), where houses at the time were certainly in the millions of dollars. 

Thing is, we wanted to pay a maximum of $120,000 for a house.

It was a very awkward relationship, lol.  She eventually had her "associate" (basically her lackey) represent us.  And even her lackey treated us like we were dirt on her shoe. 


Sid Hoffman

  • Pencil Stache
  • ****
  • Posts: 743
  • Location: Southwest USA
Thing is, we wanted to pay a maximum of $120,000 for a house.

It was a very awkward relationship, lol.  She eventually had her "associate" (basically her lackey) represent us.  And even her lackey treated us like we were dirt on her shoe.

Yeah realtors are paid on commission, so they have a huge financial motivation to get you to spend as much as humanly possible.  The deeper you go in debt, the more they get paid.  It kind of makes me wish there was a way to attach fiduciary responsibility to realty, but that's never going to happen. The best we can hope for is lending reform.

cerebus

  • Pencil Stache
  • ****
  • Posts: 509
  • Age: 41
  • Location: South Africa
Quote
Her retired father has offered to contribute up to $500 a month from his pension.

I couldn't read past that.... digging into their parents' pension to buy a house they can't afford.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Thing is, we wanted to pay a maximum of $120,000 for a house.

It was a very awkward relationship, lol.  She eventually had her "associate" (basically her lackey) represent us.  And even her lackey treated us like we were dirt on her shoe.
That's just not okay. Realtors generally make enough commission to justify great service at any price, as long as you don't tie them up with an inordinate quantity of showings and other meetings - but even a $50K home sale could net a good hourly wage after all that, so it still chaps me that some act like such snobs about target prices. I've been licensed for about a year and plan to make it my part-time FIRE job, specializing in Mustachian buys - help people buy below their means, include energy performance upgrades with purchases through creative financing, and generally stick to properties that will later make good rentals, etc.
Just FTR, in my case, the shit I took was fairly mild, the agent in question later rented a room from me in that house, and we've been friends ever since. She finally understands how the empire-building approach drove my decisions at the time (a late few nights with bourbon shots helped).

Yeah realtors are paid on commission, so they have a huge financial motivation to get you to spend as much as humanly possible.  The deeper you go in debt, the more they get paid.  It kind of makes me wish there was a way to attach fiduciary responsibility to realty, but that's never going to happen. The best we can hope for is lending reform.
The lending reform to date has helped some, but the brush is too broad if you ask me, and it often hurts investment financing. AS MMM points out, his financial situation doesn't fit modern underwriting standards, and that is true to varying degrees for many people.
I ran into a funny one recently where I was looking at financing solar panels, and underwriting said that a small rate hike on a $90K ARM on one rental could blow my DTI! The loan I wanted carried roughly a $100 payment, largely offset by revenue from the system, and the rate hike in question would represent a similar increment, so I'm apparently right at the limit.
I've been saving at least $3K/mo, but it didn't matter.
Underwriting asked for a copy of the note, which I didn't have, to analyze the possible loss of 1% of my income that would render me insolvent while I'm saving 30% or more. While waiting for that to ship, I ended up getting a no-fee, 0% offer from a card I've had for 15 years, and just wrote a check for $12K, which I'll pay off this year. These guys lost potentially thousands in interest (assuming I held that loan for years at a rate below my typical investment return) because lending reform inflated the risk associated with my transaction to a ridiculous degree.
It does appear that much of my trouble here is due to partnership investments. Underwriting rules apparently count 100% of my LLC's debt against my DTI and none of its revenue, even though it is profitable and growing rapidly. When they do look at revenue, it's last tax year's revenue against this month's debt, which skews the ratio dramatically. (we grossed more in Q1 of 2015 than all of 2014, even with 1/4 vacant for improvements that will further improve revenue)
So I need to seriously restructure and hoard cash to expand further, even with a high SR and NW approaching 250K. I'm all for responsible lending but I feel like it's a classic case of unintended consequences.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6177
  • Location: BC
He said, "I dunno, the bank told me that's how much I could afford."  When I told him that the bank just wanted to get as money out of him as possible and that he let himself be screwed, he looked at me like I had two heads.  And my husband is an engineer, and quite frankly a genius -- WAY smarter than I am in most areas.  It was a real wake-up moment for me, that just because you're "smart" doesn't mean you have a clue about how to think about money.

A good friend of mine's bf is an engineer and is looking at homes that are very highly priced, even for the Twin Cities market. Many of the homes are 3000 square feet. I suspect that he's been tailoring his search based on the amount of mortgage he can get.

I have a good friend like that - single, and went to purchase a $600k home, while working as a programmer at home.   He deliberately bought a fancy 3500 sq.ft home in a nice area, furnished it, and started to host family / friend parties -- every week.  Until he finally met a girl to marry.   Yep. it was a deliberate attempt to show off his good money making ability in the hopes of attracting a girl.   (He is Asian, but I don't know if the culture thing is the only influence in his decision)

He was otherwise very introverted, and rarely left his home or met people.  Very nice guy, and they are very happy now.   

Travis

  • Handlebar Stache
  • *****
  • Posts: 2371
  • Location: Arizona
Thing is, we wanted to pay a maximum of $120,000 for a house.

It was a very awkward relationship, lol.  She eventually had her "associate" (basically her lackey) represent us.  And even her lackey treated us like we were dirt on her shoe.

Yeah realtors are paid on commission, so they have a huge financial motivation to get you to spend as much as humanly possible.  The deeper you go in debt, the more they get paid.  It kind of makes me wish there was a way to attach fiduciary responsibility to realty, but that's never going to happen. The best we can hope for is lending reform.

When we bought a house a few years ago we had a buyer's agent.  His fee was paid by the seller, but his goal was to get us the house at the lowest price.  I'm not sure if he had a legal fidicuary responsibility to us, but I remember a bunch of paperwork he had to present to ensure he had no conflicts of interest with the seller.

sleepyguy

  • Pencil Stache
  • ****
  • Posts: 671
  • Location: Oakville, Ontario
The house price is nothing surprising for GTA.  But damn, at $125k/yr with that mortgage is INSANE!!!

And thinking of a pool and finishing the basement... how much space does a couple need?!?

This is really absurd, one job loss and they are VERY VERY screwed, if not screwed already.

Sid Hoffman

  • Pencil Stache
  • ****
  • Posts: 743
  • Location: Southwest USA
When we bought a house a few years ago we had a buyer's agent.  His fee was paid by the seller, but his goal was to get us the house at the lowest price.  I'm not sure if he had a legal fidicuary responsibility to us, but I remember a bunch of paperwork he had to present to ensure he had no conflicts of interest with the seller.

I'm pretty sure the realtor fee is always paid by the seller.  Every time I've done it they state that 6% is standard, split 3/3 between the listing & buying realtor.  On the last home I sold I negotiated this down to 5%, meaning 2.5/2.5% to the listing and buyer realtor.  STILL, the buyer's realtor wants to get their buyer in the most expensive home possible so as to maximize what percentage they are getting.  3% of $250k is more than 3% of $200k.  Yes, they will negotiate to try to get you a good price, but only after they've worked their darndest to get you shopping at the most expensive home you can afford.  That's just how the business works.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Thing is, we wanted to pay a maximum of $120,000 for a house.

It was a very awkward relationship, lol.  She eventually had her "associate" (basically her lackey) represent us.  And even her lackey treated us like we were dirt on her shoe.

Yeah realtors are paid on commission, so they have a huge financial motivation to get you to spend as much as humanly possible.  The deeper you go in debt, the more they get paid.  It kind of makes me wish there was a way to attach fiduciary responsibility to realty, but that's never going to happen. The best we can hope for is lending reform.

When we bought a house a few years ago we had a buyer's agent.  His fee was paid by the seller, but his goal was to get us the house at the lowest price.  I'm not sure if he had a legal fidicuary responsibility to us, but I remember a bunch of paperwork he had to present to ensure he had no conflicts of interest with the seller.
I was taught in pre-license school that we as agents have a fiduciary duty to anyone with a signed agency agreement.
Keep in mind that it is possible to work with an agent without having that agreement.
I actually have to explain that under AL law before receiving any confidential information or giving any advice, because either one could create conflicts of interest very easily.

trobertson79

  • 5 O'Clock Shadow
  • *
  • Posts: 54
It's too bad no one has created a website where you can capitilize on unused bedrooms by renting them out to travelers.

Sofa King

  • Bristles
  • ***
  • Posts: 381
They'll eventually just cry and complain, "I didn't knoooow!  Nooobody told me!"  Same way people do with student debt. 

 

I concur!

KarenwithaC

  • 5 O'Clock Shadow
  • *
  • Posts: 3
All I can say is that if they think they are in trouble now, they ain't seen nothin' yet.  Just wait til that baby arrives with the costs associated with two working parents (ie daycare) and they will be one pay cheque from living under a bridge.

I don't know how people live like that.

commodore perry

  • 5 O'Clock Shadow
  • *
  • Posts: 44
It's only $622k US at current exchange rate so not that bad.....joking! :)

Ho-le-shit; how two people in the financial industry could be that stupid is beyond me. Daycare is going to crush them, I bet it's a fortune in Toronto. When we were in Chicago it was ~2000/month. It's most for infants because the adult to child ratio is lowest at that age. If they are having trouble paying for a stroller and crib daycare will be a rude awakening.

Squirrel away

  • Handlebar Stache
  • *****
  • Posts: 1042
  • Location: United Kingdom
"The couple, both of whom work in the financial services industry..."



That's the bit that jumped out at me, lol.

Kashmani

  • Stubble
  • **
  • Posts: 143
What a lot of posters seem to be missing on this forum is the couple's heritage and the plan to bring the husband's parents to Canada. As a member of an immigrant community, I can state that the American attitude of letting one's parents fend for themselves (frequently addressed here in the context of anti-Mustachian parents) just does not fly for an immigrant kid. In certain cultures, there is tremendous pressure to support one's parents and to have them move in with you once you are established. Places like Brampton, Ontario (right next door to Mississauga where the profiled couple lives) is full of monster homes owned by East Indian immigrants that have (or will soon have) their parents or in-laws live with them. The size of the couple's house likely has very little to do with planned kids and everything to do with making space for the immigration of the parents.

While I support and admire frugality, the one thing that continues to amaze me on this forum is how easily posters that are not immigrants can make their own choices in life. Even MMM himself simply packed up and moved to another country and a city he liked more. I don't think you non-hyphenated Americans and Canadians understand how much hell there is to pay when one of us immigrants makes a choice like this. Hell hath no fury than the parent of an immigrant. From that perspective, I am not so sure that the outsized home was truly their independent "choice".

And trust me, living in one of the coldest cities on the planet, I have been tempted to just pack up more than once. I have, in fact, come close to the edge once and experienced the forces of hell unleashed. :)

« Last Edit: May 17, 2015, 08:37:22 AM by Kashmani »

Kris

  • Magnum Stache
  • ******
  • Posts: 3942
What a lot of posters seem to be missing on this forum is the couple's heritage and the plan to bring the husband's parents to Canada. As a member of an immigrant community, I can state that the American attitude of letting one's parents fend for themselves (frequently addressed here in the context of anti-Mustachian parents) just does not fly for an immigrant kid. In certain cultures, there is tremendous pressure to support one's parents and to have them move in with you once you are established. Places like Brampton, Ontario (right next door to Mississauga where the profiled couple lives) is full of monster homes owned by East Indian immigrants that have (or will soon have) their parents or in-laws live with them. The size of the couple's house likely has very little to do with planned kids and everything to do with making space for the immigration of the parents.

While I support and admire frugality, the one thing that continues to amaze me on this forum is how easily posters that are not immigrants can make their own choices in life. Even MMM himself simply packed up and moved to another country and a city he liked more. I don't think you non-hyphenated Americans and Canadians understand how much hell there is to pay when one of us immigrants makes a choice like this. Hell hath no fury than the parent of an immigrant. From that perspective, I am not so sure that the outsized home was truly their independent "choice".

And trust me, living in one of the coldest cities on the planet, I have been tempted to just pack up more than once. I have, in fact, come close to the edge once and experienced the forces of hell unleashed. :)

Very good points.  And, on a positive note, this would take care of the daycare issue... :-)