“We would like to move to a new house 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.
“My question: what is the maximum value of buying a new home that we can afford without diminishing the pace that we have? »
Hugo is an engineer.
“I’m 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’re talking 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 past 12 months.
“Food, for a budget like ours, plays a huge role,” Hugo points out. The bite out of the budget is huge: food has taken up 40% of spending over the past year.
Is there budget space left for an expansion 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,” says the father.
It is difficult to expand their current home.
“The ideal would be to have a new house built 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, of course. We’re still talking about $850,000. My scale is: what am I able to afford? Do I have to, can I go to this? »
Child allowances are currently generous, but will decrease with each child who turns 18.
“You can’t, in the long term, consider that income,” Hugo points out. “If you go to the bank and put that on the table, I don’t think the bank will accept it.” They can’t rely on that. »
In short: “Am I going into this or not?” »
Hugo, 50, Marianne, 42
Financial planner David Truong, advisor at the National Bank Private Wealth Center 1859, 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 daily management of it all! »
This is precisely the issue that concerns us.
Can Hugo and Marianne acquire a bigger, and therefore more expensive, house without too much budgetary risk?
“The good news is that they have a home that’s worth close to $650,000, which they have good equity on,” the planner points out.
With a mortgage balance of $91,000, the net assets are around $560,000.
For the sake of conscience and to set boundaries, David Truong first probed the depth of the usual qualifying criteria: Total Debt Amortization (TDA) and Gross Debt Amortization (GDA).
The ATD ratio states that monthly housing costs (mortgage, property taxes, heating cost, and 50% of condominium 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 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 12 or younger. »
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.
“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 rhythm” that 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 home for net assets of $560,000, they could in principle acquire a property worth $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 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 can think that their income substantially balances their expenses and that they cannot absorb an additional cost of $12,000 per year.
However, the budget data they provided to us raises 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 leeway.
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 are clearing – or not – of a margin for a larger monthly mortgage payment.
“We must already anticipate that income will fade, warns David Truong. Beware of over-indebtedness. »
