“We would like to move into a new home with more bedrooms,” raises Hugo Roy.
The current family home has only six – a problem relating to the size of the family.
Hugo Roy and Marianne Tremblay have 10 children from 11 months to 19 years old, who are starting to feel cramped there.
“My question: what is the maximum value of the purchase of a new house that we can afford without diminishing the rhythm that we have? »
Hugo is an engineer.
“I am the only employee in the house, he says. I still have an excellent salary. »
He earns $71,500 after taxes and other levies.
Marianne has the heavy burden of the household.
“Social benefits, whether federal or provincial, are still quite high,” says Hugo. For the two together, we are talking about close to $60,000, net of taxes, in our pockets. »
In 2022, the family received $21,500 in Quebec family allowances and $44,500 in Canada child benefits.
According to the budget in the bank account, the family’s expenses totaled $101,600 for the last 12 months.
“Food, for a budget like ours, plays a huge role,” emphasizes Hugo. The bite in the budget is enormous: food has monopolized 40% of expenses for a year.
Is there budgetary space left for an extension of their living space?
“We looked at it to see what we are able to do as a project, what we are able to afford”, formulates the father of the family.
It is difficult to enlarge their present dwelling.
“The ideal would be to build a new house to put our needs on the table. But I looked at that a little bit, and for big houses, we’re talking about $600,000 to $800,000, plus land, plus taxes. »
The resale market? His cousin spotted a house for sale in Sainte-Foy.
“A big house, obviously. We are still talking about $850,000. My scale is: what can I afford? Do I have to, can I go towards that? »
Child allowances are currently generous, but will decrease with each child who turns 18.
“You cannot, in the long term, consider this income,” emphasizes Hugo. “If you go to the bank and you put that on the table, I don’t think the bank accepts. They can’t rely on that. »
In short: “Am I going into this or not? »
Numbers
Hugo, 50 years old
Marianne, 42 years old
- Hugo’s salary: approx. $71,500 net (after taxes)
- Family allowances :
Quebec: $21,500
Federal: $44,500 - Current expenses: $101,600
- Property value: $650,000
- Mortgage balance: $91,250
- Monthly mortgage payment: approx. $700
The answer
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
Financial planner David Truong, advisor at the National Bank Private Wealth Center 1859
Financial planner David Truong, advisor at the National Bank Private Banking 1859 center of expertise, confirms that (very) large families are not that rare. “I had a colleague who also had 10 children,” he observes. What impresses me the most is the day-to-day management of it all! »
This is precisely the issue that concerns us.
Can Hugo and Marianne buy a bigger, and therefore more expensive, house without too much budgetary risk?
“The good news is that they have a house that is worth close to $650,000, on which they have good equity,” points out the planner.
With a mortgage balance of $91,000, net assets are approximately $560,000.
The case of allowances
For the sake of conscience and to set the limits, David Truong first probed the depth of the usual qualification criteria: the total amortization of the debt (ATD) and the gross amortization of the debt (ABD).
The ATD ratio states that monthly housing costs (mortgage payment, property taxes, heating cost and 50% of condo fees), plus repayment of other debts, must not exceed 40% of gross income.
The ABD ratio fixes the mortgage borrowing capacity. Here, monthly housing costs should not exceed 32% of gross income.
The question that arises for Hugo and Marianne is whether the financial institutions, in addition to Hugo’s gross income, will take family allowances into account.
“The answer is that it depends on the financial institution,” informs our adviser.
Some lenders accept them unconditionally, others consider half allowances, capping them at 25% of total income.
“Others withhold 100% of benefits and up to 30% of total case income, provided the children are aged 12 or under. »
This is the criterion used by our planner, who only considered allowances paid to children aged 12 and under. For our family, this is the case of seven children. For the purposes of his estimate, he withheld $46,000 of the $66,000 received in 2022.
Using current property taxes ($4,600 per year) and electricity costs ($360 per month), mortgage calculations show that our couple could get a maximum loan of $841,000, with a monthly payment of $5,157, based on a rate of 5.54% and an amortization of 25 years.
By depositing the net assets of their current property as a down payment, Hugo and Marianne could theoretically acquire a property worth $1,400,000.
It is of course silly.
To qualify, there will be no problem. But these are qualifying criteria. One should never borrow to the maximum of one’s capacity, because one can always have unforeseen events. And in their case, the unexpected is quite predictable in the short term, knowing that the allowances will end at 18 years old.
David Truong, financial planner and advisor at the National Bank Private Wealth Center 1859
The budget test
“Even if their borrowing capacity is high, the budget is limited, raises the planner. It is very important to respect the budget, and determine the amount that it would be possible to allocate to the mortgage payment. »
However, Hugo and Marianne made it clear that they did not want to “reduce the pace” they have.
In their current budget, Hugo and Marianne set aside $8,400 for the mortgage payment, or $700 per month. Under current market conditions, this monthly payment corresponds to a loan of $120,000 amortized over 25 years.
With the sale of their house for net assets of $560,000, they could in principle acquire a property for $680,000. This leaves little room for improvement compared to the current situation.
Assuming they find an $850,000 house – a seven-bedroom house is currently for sale at that price in Sainte-Foy – they would have to spend about $1,740 on the monthly mortgage payment, or $1,000 more than currently.
With 10 children and their disciplined life, one might think that their income substantially balances their expenses and that they cannot absorb an additional cost of $12,000 per year.
However, the budgetary data they provided us raise some doubts. The budget taken from their bank account shows expenses of $101,600. Faced with net incomes of $130,000, there seems to be some wiggle room.
But on another bank statement, the total annual transactions are around $130,000.
It is only with a thorough analysis of their expenses that Marianne and Hugo will be able to confirm whether they have – or not – a margin for a larger monthly mortgage payment.
“We must already predict that income will fade, warns David Truong. Beware of over-indebtedness. »