Lifestyle | Preparing to finance a first residential purchase

The situation

Marie*, 23, began her career as a lawyer with a well-paid job in the public sector and good benefits: group insurance, defined benefit pension plan, etc.

Marie is considering purchasing a condominium within three years, at a cost of approximately $400,000.

She is also concerned about the proper financial planning of this real estate project.

“I have a good starting income, but still few financial assets in my registered savings accounts, and a student loan balance,” Marie says in a discussion with The Press.

“My budgetary and financial situation seems favorable to my project of first purchase of a residential property,” says Marie.

“Nevertheless, I would like some advice on how to properly organize and prioritize my savings capacity in anticipation of this project, while taking into account medium-term tax and financial planning considerations.”

Marie’s situation and questions were submitted for analysis and advice to David Paré, financial planner and investment advisor at Desjardins Wealth Management in Quebec.

The advice

From the outset, David Paré compliments Marie for the attention she pays to the good financial planning of this condo purchase project.

“For a 23-year-old young professional at the start of her career, Marie has a good approach to financial planning and savings management that promises to pay off in the medium and long term,” comments Mr. Paré.

This attitude of Mary, he notes, should facilitate the preparation of her mortgage borrowing capacity, as she approaches the realization of this project.

“For future first-time buyers of a residential property, like Marie, it is important to establish their budget capacity based on their future mortgage payments and other costs. [taxe foncière, charges de copropriété, dépenses d’emménagement ou de rénovation, etc.] before shopping for their future property,” recalls David Paré.

“It’s also important to facilitate the process of prequalifying for a mortgage, another important asset when shopping for real estate for the first time.”

Marie, Mr. Paré estimates, should expect her residential cost budget to increase from $20,000 to just over $30,000 per year once she completes the purchase of a first $400,000 condo.

That said, how can you properly prepare the financing for Marie’s first residential purchase?

First, David Paré advises him to prioritize the accumulation of sufficient capital as a down payment to avoid having to take out mortgage loan insurance.

“This insurance represents a significant additional cost on mortgage interest charges. To avoid it, you need a down payment of at least 20% of the property purchase price,” recalls Mr. Paré.

“In Marie’s case, with her plan to buy a $400,000 condo, that means a down payment of at least $80,000 to be built up within three years.”

How to achieve this?

“Marie already has the advantage of a very good savings capacity, around $30,000 per year according to her budget information on employment income and lifestyle expenses,” notes David Paré.

First, he advises him to prioritize his first contributions to his CELIAPP-type registered savings account established last year.

He advises Marie to deposit at least $10,000 this year in her CELIAPP in order to optimize the use of her first contribution rights accumulated in 2023 and 2024.

In addition, Marie will then benefit from a sum of approximately $3,500 in tax credit that she can use to repay part of her student loan.

Second, David Paré recommends that Marie channel the other portion of her 2024 savings capacity towards contributions to her TFSA.

For next year, in 2025, David Paré advises Marie to maintain the same savings priorities in her CELIAPP and CELI accounts.

“If she contributes the maximum of her accumulated contribution room in CELIAPP, which I estimate to be around $13,900 in 2025, Marie will then benefit from a little over $4,000 in tax credit that she could use to further reduce the balance of her student loan,” explains David Paré.

As for the other portion of her anticipated savings capacity of $30,000 in 2025, which he estimates at around $16,000, David Paré advises Marie to use the majority of it, approximately $9,000, to cover her eligible TFSA account contributions.

The remaining $7,000 of Marie’s savings capacity in 2025 could then be deposited into her RRSP account, to make up for her unused contributions.

With such a contribution to her RRSP, Marie would then benefit from a sum of approximately $2,400 in tax credit with which she could further reduce the balance of her student loan.

For the year 2026, when preparations for her first residential purchase will be well advanced, David Paré recommends that Marie prioritize another maximum contribution of approximately $8,000 to her CELIAPP account.

In order to obtain another – and final? – amount of tax credit in the order of $2,500 in order to complete the repayment of his student loan.

As for the remaining portion of Marie’s savings capacity of $30,000 in 2026, David Paré advises her to still prioritize the maximum contribution to her TFSA, before making up for her unused contributions to her RRSP.

What result is expected from these three years of saving in anticipation of a first residential purchase?

According to his calculations, and taking into account an annualized return of 3.5% on the accumulated capital, David Paré estimates the total amount accumulated by Marie in her CELIAPP and CELI accounts to be around $82,000.

This would be enough for a minimum down payment of 20% on a $400,000 real estate purchase, which could be financed by a mortgage without the additional costs of loan insurance from the Canada Mortgage and Housing Corporation.

Such a down payment (of 20%) would also be possible without Marie having to resort to a HBP (Home Buyers’ Plan) type withdrawal from her RRSP account.

“But if the cost of her first residential purchase exceeded $400,000, which would increase the minimum down payment amount to avoid mortgage loan insurance, Marie will still have the financial capacity to add a few thousand dollars from a HBP,” concludes David Paré.

* Although the case highlighted in this section is real, the first names used are fictitious.