First Time Home Buyer at the Age of 22: How I Did It

During August 2015, I was driving through West Hill, a community in Toronto’s east end. I came across the former Toronto District School Board (TDSB) site of Heron Park Jr. Public School – which had been closed down and went up for sale. Amid Toronto’s rising real estate prices, TDSB has sold some of their properties, turning schools into residential subdivisions – a trend that’s common in Scarborough and within other parts of Toronto. This exact same spot I drove by, turned out to be the spot of where my first home will be, at the age of 22.

Real Estate Story

I’ve always kept an eye out for good real estate deals since I started working shortly after I graduated high school. In fact, in July 2013, I bought 1 bedroom condo in Tridel’s Avani building, in Toronto. Within the standard 10 day cooling off period, I decided to cancel it – and continue to save up for a low-rise, freehold home since they historically have more value for the long run. During my spare time, I would check up on new developments, and tour various open houses within the Toronto area.

Going back to the time where I drove by the former site of Heron Park Jr. Public School, I immediately became interested in purchasing one of the lots. The area had lots of amenities that I desired:

  1. Proximity to Guildwood GO Station and Rouge Valley GO Station (one TTC bus route away from each of them), and walking distance to one of the stops along the eastern portion of the upcoming Eglinton Crosstown LRT. The commute to Union Station would be around 45 – 50 minutes.
  2. Next door to one of Toronto’s parks and community centres, which includes tennis courts, basketball courts, skating rink, and a swimming pool.
  3. Walking distance to Morningside Crossing, one of Toronto’s newer shopping plazas.

More importantly, this subdivision is also close to East Point Part – a lakeside park just east of the well known Scarborough Bluffs. In other words, it was the perfect mix between city living and benefits of green spaces.

The Purchase

Later on, I found out the home builder will be Mattamy Homes – I immediately registered online to ensure I get the updates as soon as possible. The first set of townhouses were released around October 2016. I made several visits to the sales office – however, I didn’t make a purchase right away although I was highly interested in the property.

During this time, I was still looking at other properties, mostly in the Durham region, since the homes are cheaper than the average GTA home price. In January 2016, the average townhouse in the Durham Region sold for $400,618, 37% cheaper than the average GTA townhouse (TREB). However, I decided to stay in Toronto because it makes more financial sense in my circumstances – the property taxes in Toronto are the lowest in Ontario, and I would save a significant amount of money and time on commuting.

On January 4th, I made the big decision – I went in with my real estate agent, and made the purchase for a freehold townhouse, at the age of 22. It was definitely a huge accomplishment, especially during the time where real estate prices in Toronto continue to be on the rise.

It was surreal – I didn’t expect myself to end up purchasing a property at an early age. However, it was definitely a dream come true – after over 3 years of real estate hunting, I finally found the property that I was looking for.




The Price

The purchase price was $532,000, for a 1685 square foot townhouse (end unit), with a deck on the second floor, and a backyard that’s approximately 20 ft deep. There was also a $5,000 credit towards the design studio, and 3 stainless steel appliances.

After the additional builder’s credits, the final purchase price was $526,000, including the design studio upgrades. At this time, the average Toronto East townhouse sold for $567,963 (TREB). So I knew I was getting a good deal.  

Toronto Townhouse vs. Suburban Detached Home

After I made the purchase, I had a cooling period to review the documents with a real estate lawyer, and/or make any changes (such as switching lots or cancelling the purchase). I discovered that the same home builder was selling detached homes in the Brampton area – at the same price as the townhouse I purchased.

However, it was approximately the same size. In fact, the property taxes and commuting costs would be significantly higher. (i.e. commuting to Union Station from Mount Pleasant GO would cost $9.15, approximately $3 more than the average Toronto East GO Station). So I decided to stay in Toronto, in order to be closer to family/friends, and my place of work.

Condo Townhouse vs. Freehold Townhouse

Within my subdivision, I had three choices – condo urban townhomes, freehold urban townhomes, and 3 storey freehold townhomes. In essence, at the time of purchasing I had the choice between freehold townhomes and condo townhomes. Urban townhomes are the new trend – they are essentially two rows of townhomes back to back, with no backyard.

The urban townhomes were going for $400,000 for 1379 square foot. And the freehold townhouse I was looking at was $532,000 for 1685 square foot. It was also a corner unit with 9ft ceilings on the first and second floor, which is one of the features that I was looking for.

I spoke with my real estate agent in regards to the two options and they made a good point. The freehold townhomes carrying costs wouldn’t be significantly higher than the condo urban townhomes, after the maintenance fees are taken into consideration. Hence I chose the freehold townhouse since they were bigger and have no maintenance fee – a feature that typically provides a higher resale value.

For example, at a 2.5% interest rate, a monthly maintenance cost of $200 has the opportunity cost of an additional $44,000 (25-year amortization) mortgage (rough estimate). Keep in mind, there are some condos with rapidly rising maintenance fees – a factor that can negatively affect the resale value of your home.

There are also new condo occupancy fees – which can add to the closing costs, making the purchase more expensive.

Income  

I’ve been working since the age of 18 – I started as a photographer for my mom’s business, then got a part time job at the bank as a teller, right after high school. Throughout university, I worked two part time jobs – at the bank, and at the University of Toronto Scarborough Finance and Trading Lab. During the school year, every Friday was payday (which is something I’ll miss).

During my summers, I worked full time doing internship roles. In general, I aimed to save at least 40% of my income.

Savings and Investments

Rule #1: Pay yourself first – as mentioned in the millennial savings guide. I had automatic contributions to my investments, on every payday. Obviously this is a general rule – if you have high interest debt, I would highly recommend paying that down first, and/or consolidating it into a lower interest rate option, such as lines of credits, or personal loans.

As stated above, I aimed to save 40% of my income through different investment vehicles, such as RRSPs, and TFSAs. I also maxed out any sort of incentives available – such as opening a bank account to receive some sort of incentives, such as cash back, or a free TV. In general, I tried to be as frugal as possible with my financial decisions (and my friends can attest to this).

I opted for an option to take 6% of my paycheque towards my RRSP – where my employer matches 50% of my contribution, making it equal to 9% of my paycheque going towards my RRSP. I saved the remaining of my available funds within my TFSA, where I took advantage of options trading, and stock trading. I also diversified my investment portfolio and allocated a portion of my TFSA funds towards robo-investing services – which invests into a group of ETFs, based on the risk tolerance and financial circumstances of the account holder.




Down Payment

At the time of purchasing my first home, the deposit required was $40,000. Nowadays, many builders for low rise pre-construction homes ask for down payments of around $60,000, or in some cases, more than $100,000. For condos, builders usually require a deposit 20% of the purchase price.

Approximately $10,000 of my down payment was funded through my RRSP – where I took advantage of the First Time Homebuyers Plan (HBP). This is basically an interest free loan from your RRSP – where you can withdraw up to $25,000 in a calendar year towards the purchase of your first home. These funds would have to be repaid within 15 years. If you’re using this plan, I would recommend setting automatic contributions to your RRSP, instead of waiting last minute (you should opt in for automatic contributions, regardless).

Once the property closes, I’ll be making an additional down payment to reach the 20% mark, making my total down payment $105,200. I’m opting for the 20% down payment for two main reasons: lower monthly costs from longer amortization periods (up to 30 years), and no CMHC fees – which can cost as much as $19,954 if I were to put 5% down. Although this can be financed into the mortgage, I would have out of pocket expenses on the tax for the CMHC default insurance. This 8% PST (Provincial Sales Tax) cannot be financed – adding up to $1,596.32 to the closing costs (8% x $19,954).

Ratehub has a useful tool for calculating how much your default insurance would cost, if your down payment is below 20%. Keep in mind, with heated real estate markets, such as Toronto Real Estate, it may be wise to take advantage of a smaller down payment, in order to get your foot into the market as soon as possible.

Pre-construction vs. Resale

I had this debate of choosing a resale property or buying on concept. Each have their own pros and cons. However, personally, I opted for pre-construction, mostly because I would love to customize the interior (I blame Property Brothers for my newfound obsession of interior designing), and I’m in no rush to move out (currently living in my parents house). In general, pre-construction projects (sometimes) have incentives from the builders, such as stainless steel appliances, and design studio credits.

Purchasing a pre-construction home is usually the easier way to enter the market. I purchased the property at a slightly below market value, and the future closing date allowed me to save more, and manage my finances in order to have enough saved up for a 20% down payment.

Bank of Mom and Dad

The ‘Bank of Mom and Dad’ didn’t provide me with down payment assistance. However, they did help me pay my tuition – allowing me to save up faster towards a down payment. I would have opted for a cheaper alternative, such as a condo townhouse or condo, if my parents didn’t help pay for my tuition.

Bottom Line

That’s my ‘real estate story,’ after three years of house hunting, and finally stumbling across a property that met my criterias. Especially in heated housing markets, property purchases have to be strategic. For example, it may be wise to opt in for the 5% downpayment option in order to get your foot in the market quicker. In fact, some prospect homebuyers are considering co-ownership as an option.

I left the closing costs and mortgage info out because that’s a whole new post – the house closes in August (assuming there are no additional delays), so I’ll definitely share my experience on that. As Sean Cooper mentioned in his recent book, Burn Your Mortgage, closing costs are a hidden real estate topic – it can cost up to 4% of the purchase price.

I had the financial goal of purchasing a house. I achieved this through automatic savings plans, investments, and working throughout my four years at university. All in all, any financial goal can be achieved with a realistic plan, and executing it in steps.

You May Also Be Interested In: 15 Ways to Save for a House Downpayment


Writer: Jelani Smith

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.

  • CanadianBudgetBinder

    Wow congrats to you. I did something similar and bought my first house at 19 and my second a few years later back in the UK. I live in Canada now with my wife and son. It was worth the saving that’s for sure as we are debt free including our mortgage. Keep at it!!!

  • Jelani Smith

    Thank you! Congratulations to you as well for buying a house at a young age – something that’s always worth saving up.

  • Faheem

    Hey,

    Good read. Wanted to ask you a few questions as a fellow 22 year old looking to eventually be able to purchase a free-hold house. I find it hard to believe that a 22 year old was able to afford a mortgage on a $530000 home, yet alone a downpayment. However, I have not heard the fully story from yourself, so I wanted to ask a few questions about how you actually did it.

    1. You purchased the home this year January, before you graduated from university correct?
    2. I understand you worked 3 internships by now as well as during your almost 4 years of school had 2 part time jobs. If you don’t mind me asking how much did this come out to? My guess is an internship in Toronto pays 12k each summer (after-tax) and your part time work each year might be another 8k (after-tax). Meaning in total 80K. You saved about 40% of this 32k. Is this roughly correct? Asking cause trying to justify how you got the money for the downpayment. I understand you invested your money but putting into a cash TFSA and a robo-advisor such as Wealthsimple would not increase the amount by too much (5-20%). The matching RRSP 50% is probably your biggest advantage here.
    3. As you mentioned, when the house closes, you will need a $105k downpayment. Based on my calculation above you have only around 32k in savings. Lets say you did well with stocks and other investments. How does this close the gab between 32k and 105k?
    4. The main part I don’t understand is how you are going to afford a mortgage of 420k. I assume you found a full-time job at this point and just haven’t started (Since you’re about to graduate)? Again, you may have an extremely high paying salary as a new grad (but unlikely). The best jobs in Toronto for new-grads pay around 80k. Using an RBC mortgage affordability calculator with the following inputs (30 year amor/2.69% 5 year fixed rate/$80000 annual salary/$300 month property tax/$100 month utilities/$105k downpayment) this means you can get a mortgage of 380k. So 420k is not too much of a stretch, but it means that you need to be making 80k and have those stats.
    5. With all the above being said, you still have closing costs (lawyer, land transfer tax (although I know you get a refund, tarion insurance, etc.). Not really seeing where this 3-4% is going to come from.
    6. A lot of the things in your article I agree with, some I don’t. It is true historically that freehold houses appreciate more, but we now see condos are holding onto their value more and appreciating faster since freehold homes have hit a peak for now (because of the new housing rules on Apr 20). Houses have gone down around 70-80k since March 2017, while condos have retained the same value (just have stop appreciation for now). Condos are now becoming a lot more in demand, due to the cost of freehold houses being too high.

    Let me know about the above. If your not comfortable with answering something that’s fine. I’m just trying to get down to the nitty-gritties of how you did it and I know you mentioned you couldn’t write about everything in this one article.

  • Faheem

    Hi Jelani,

    Not sure what happened to my previous comment?

  • Jelani Smith

    Hi Faheem,

    I just saw your comment on under the website portal, however it didn’t get posted on here for some reason. May you please repost it, and I’ll reply to it from there. Or feel free to contact me at jelanismith@baystreetblog.com

    Cheers

  • Faheem

    I don’t want to write everything, but I had two main questions of how you came up with the money.
    1) How did you get the 105k down payment? If you made 12k each internship and 8k each year you worked in uni, that would be 68k. Saving 40% of that makes 27.2k. I know you invested in different things, so I don’t know what your return is but for sake of argument lets say 100%, so now your at 54.4k after 4 years. Just wondering how you are able to make up the additional 50k?
    2) How did you afford a 420k mortgage? Using the following stats: 80k salary, 105k downpayment, 2.59% @ 5-year fixed, 30 year amor, that allows you to take out 380-400k. Of course this assumes your making fairly close to 80k which not many new-grad jobs in Toronto.

    Please advise. I am a 22 year new grad just like yourself who one day would like to own a free-hold home. Hoping I can clarify these things so I can put them to use as well.

    Thanks,
    Faheem.

  • Jelani Smith

    I saved at least 40% of my income, however in many cases I saved much more than this (40% was the minimum I aimed for). For my investments, I did some options trading (where the returns were greater than 100%). I wrote a post on this as well: http://www.baystreetblog.com/2017/05/03/aapl-options-trading-strategies/

    The mortgage really depends on the interest rate and credit score of the person applying. The result varies depending on the mortgage affordability calculator used. For example, using the income stats you used, TD’s mortgage calculator indicates the maximum purchase price with a $80,000 income is $535,000 with a 25 year amortization (including the $105,000 downpayment). Depending on the interest rate, the monthly payment would be around $1500 – $1700, which is slightly cheaper than the average one bedroom rent in downtown Toronto.

  • Faheem

    Appreciate the response.

    I understand you invested your money, and sometimes more than 40%. I was just doing the math though and 3 internships and two part times jobs for 4 years must mean you earned at most like 100k (I’m just using an aggressive number). Saving say 60% on average makes it 60K. From 60k, you were able to essentially invest up to 105k? I’m sure that’s possible, I just wanted to know if thats how you made the huge jump.

    Regarding the mortgage, I just used the calculator myself, showed with an 80k salary you can take out 420k mortgage. With the 105k deposit, you can purchase a 525k place, just like in your situation. Anything less than 80k though, you would either have to have a very low variable interest rate (which I dont think is smart), and still be making at least 70k? If you don’t mind me asking what do you do for a living? Is your new grad position really giving you that much?

  • Josh Barnes

    The author is full of shit. He either 1) didn’t buy what he claims he did 2) got help from mom and dad, plus co-sign.