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RRSP at Oaken and First time home buyer program
November 11, 2020
7:02 pm
dwdrajesh
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Hi Guys, I am a beginner in investing and RRSP etc. So, please forgive if this is an obvious or stupid question. I am looking to buy a home in the near future, planning to buy within the next 6 months and have just started my search. I recently found out that under the first time home buyer program, we are allowed to withdraw up to 35k from our RRSP, which I understand must be paid back in 15 years. Now, I am planning to put around 12k at Oaken so that my current year's tax bracket will be lower and I can withdraw after 90 days for the home buyer program, if that makes sense. My question is, since I will be withdrawing this money anyway before a year, I don't want to put this RRSP under any GIC that's longer than 3 months at Oaken. Is there any way I can just open RRSP with them and keep it under a normal savings account though? Is that an option or I can put it under a short period GIC, say 3 months and withdraw at the end? Also, if I put it for a lets say 1-2 year GIC, will they let me break the GIC for the first time home buyer program? Thanks a lot guys.

November 11, 2020
7:40 pm
Loonie
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It looks like you can put RSP money at Oaken for as short a time as 30 days. Current rate is 1.25 for short term.
https://oaken.com/gic-rates/?gclid=EAIaIQobChMIj6LgioP87AIV0vDjBx09ww0OEAAYASABEgLtyvD_BwE

They don't offer registered savings accounts.

I wouldn't count on being able to break the GIC. I'm pretty sure they would not guarantee that in advance and would direct you instead to the short term deposits. They do have a cashable one year GIC but it pays peanuts and not worthwhile.

Your alternative would be an RSP savings account at a different FI. Beware of possible withdrawal or closing fees. Oaken has no such fees. Fees may not matter if you have a large enough deposit to justify it at a higher rate. However, there is no telling how long a higher rate will last in most cases.

For an RSP, Hubert is the other one that has no fees, currently at 1.3%.
I don't know how big your RSP is, but if it's over 100,000, you will need to be aware of insurance limits. Oaken could accommodate up to 200,000 through its two entities, Home Bank and Home Trust.
But it may be worth your while to pay a fee if you find a rate you like.

Keep an eye on EQ. They are scheduled to offer TFSAs beginning end of this month or so. It's possible they will also offer RSPs soon, but we don't know yet. If so, they will likely offer a very good rate and might not charge a withdrawal or closing fee.

Bear in mind that most financial institutions will penalize you for closing an account within 3 months or so. Check for details. You can get around this by leaving a small amount in the account if necessary.

Happy hunting!

November 12, 2020
5:57 am
hwyc
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... Cannot see your plan at Oaken being practical.

  • No registered savings account
  • No short-term GICs with Oaken registered plans as well.
  • Registered GICs are non-redeemable
November 12, 2020
6:02 am
dwdrajesh
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Hi Guys, thanks a lot for the replies. I know you guys helped a lot earlier when I had issues with Tangerine :).
I am not focused on the short term GIC now. Since I am planning to buy a house in the next 3-6 months as I said, I will have enough downpayment without the RRSP too. But my concern is that since I can afford to put some money on the RRSP, which will lower this year's tax bracket for me, I am inclined to put around 12k in the RRSP. I already have an old RRSP with Oaken for 17k which I will withdraw for the home buyer though.

November 12, 2020
9:27 pm
Loonie
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hwyc is correct about the lack of short term term deposits for registered plans at Oaken. The minimum is one year.
I mis-read their chart earlier.

November 12, 2020
10:42 pm
Norman1
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Oaken does offer short term GIC's for RSP's. This is below their short-term GIC rate table:

Short-term GICs are non-redeemable and require a minimum deposit of $1,000. Interest is compounded annually and paid at maturity. Also available as RSP from 90 days, with a minimum deposit of $2,500.

Page 3 of their Home Trust Company RSP form allows one to select a short term GIC, 90 - 364 days. sf-smile

November 13, 2020
4:53 am
hwyc
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Good catch, Norman1.

November 13, 2020
5:27 am
dwdrajesh
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Hi Guys, after having talked to my 'main' bank, RBC's agent for a mortgage preapproval, as she said, the market is offering me mortgage close to 2% now for buying a house and I have more than 20% for downpayment without taking the RRSP for a first time home buyer, now I am thinking of putting the extra money I have other than the 20% into a sort of mutual fund, which as she said and I googled a bit, offers around 5% if I put it for say 5 years. This is of course not guaranteed, but it made sense when she explained that given the low rates for mortgage now, it would be wise to put money into a longer term mutual fund than putting all on the downpayment if I have more than the minimum 20% I would need in order to avoid paying close to 10k for the CMHC insurance. What do you guys think? Sorry, I am a first time home buyer and an immigrant too, so my financial knowledge here is close to nothing. Thanks a lot guys

November 13, 2020
6:29 am
hwyc
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If you go the path as the agent suggest, your funds cannot remain under CDIC coverage or Oaken. I would proceed with HBP on the purchase. Then open self-directed brokerage account elsewhere after & use the HBP payback to buy the mutual funds. That way, you have way more control over the timing going into the market, or go back to the safety of GICs. ... The difference is you won't be compelled to invest because you have borrowed more from the bank up front.

November 13, 2020
6:33 am
topgun
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dwdrajesh said
Hi Guys, after having talked to my 'main' bank, RBC's agent for a mortgage preapproval, as she said, the market is offering me mortgage close to 2% now for buying a house and I have more than 20% for downpayment without taking the RRSP for a first time home buyer, now I am thinking of putting the extra money I have other than the 20% into a sort of mutual fund, which as she said and I googled a bit, offers around 5% if I put it for say 5 years. This is of course not guaranteed, but it made sense when she explained that given the low rates for mortgage now, it would be wise to put money into a longer term mutual fund than putting all on the downpayment if I have more than the minimum 20% I would need in order to avoid paying close to 10k for the CMHC insurance. What do you guys think? Sorry, I am a first time home buyer and an immigrant too, so my financial knowledge here is close to nothing. Thanks a lot guys  

When I bought my house I put as much down as possible to avoid CMHC insurance. My rules if you can borrow at 2% and invest for 2% higher you will do well. Best wishes.

Have a Great Day

November 13, 2020
7:25 am
dwdrajesh
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hwyc said
If you go the path as the agent suggest, your funds cannot remain under CDIC coverage or Oaken. I would proceed with HBP on the purchase. Then open self-directed brokerage account elsewhere after & use the HBP payback to buy the mutual funds. That way, you have way more control over the timing going into the market, or go back to the safety of GICs. ... The difference is you won't be compelled to invest because you have borrowed more from the bank up front.  

Sorry, I didnt get it , why did you mention that if I follow the agent's advice of just putting 20% in downpayment and put the rest of my money in a mutual fund, isn't it a wise decision? I am confused what the wise decision would be now, should I put all of my money which is close to 30% of the house's price OR put 20% in the downpayment and invest in a mutual fund for 5 years which has the chance of earning around 5%, of course with the risk. Thanks a lot.

November 13, 2020
7:46 am
Loonie
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(Oaken needs to improve their rates page, because when you click on the Registered section, the short term rates disappear.)

Now, about the mortgage and the alternative investment possibilities...

You will get a lot of different opinions on this, but here is what I have to say:

You need to remember that the RBC employee is not an objective advisor. She is a sales rep. Her job is to sell the most RBC products that she can, and they pretty well always want you to buy their house brand mutual funds. This includes PH&N funds. This part of what I'm saying is simply a fact.
It doesn't mean the advice is necessarily bad but it's not objective. All she is doing is matching up the money you have with her mutual funds roster. Her JOB security depends on selling these funds, and I am not joking. Your FINANCIAL security depends on you knowing what you need and then finding out who can offer you the best deal for what you need. The sequence is very important.

You noted that the 5% is not guaranteed. That's for sure! Repeat that to yourself ten times before you make any decisions. Not only is the 5% not guaranteed, but your capital, the amount you invest, is not guaranteed either.
I realize you have a long time horizon, but you also have a long time horizon for that mortgage. When and if mortgage rates go up, the stock market will likely go down.
How stretched are you with that mortgage? How secure is your income?
If it were me, I would not invest that money. I would put it into the down payment or keep it as a nest egg if I didn't have enough. Your RBC advisor will be crestfallen, but that's what I'd do.

Others will disagree with this advice as they have absolute faith in the markets. But I would say that, these days, 20% down is nothing, especially in the more expensive or volatile housing markets.
It's the other 80% that you need to worry about.
It's my belief that when you are in the first term of your mortgage on your first house, you should act very conservatively with whatever money you have. Wait until you are ten years into that mortgage, assuming a 25 year amortization, before you invest in anything else. And keep paying it down as soon as you reasonably can.
Yes, you might, or might not, end up with more money if you put it in mutual funds, but don't fiddle around in those early years when things can go wrong and you are stuck with big bills.

You also need to look at what other savings you may have. If you don't have any, then I wouldn't put this extra cash anywhere except in non-registered HISA or very short term deposits. You need cash in case something goes wrong with your house - and believe me, it will. Even if it's a brand new house, you will be putting money into landscaping and the equipment you need and want to run a home and perhaps raise a family.

The RBC person's advice is based on the assumption that, basically, things will not change significantly, that past successes are your guide. But it's not the things that you can predict that are the problem. It's only the things you fail to predict or pay attention to. This year provides a great example. And it's the things you can't or don't predict that you need to provide some insulation against.

Full disclosure: I had a horrendous experience with an RBC rep who sold my then-98 year old mother a totally inappropriate mutual fund last year without my knowledge, and then wouldn't let me, as her Power of Attorney, cash it in when mum needed the cash. My mother has zero understanding of mutual funds, and she has a hearing deficit.
The story is much longer and worse than what I have said, but you need to be aware that it is not their job to recommend what's best for you. That's your job, to find out, to learn, to do the research, and to recognize you are dealing with a salesperson. Their only obligation is to sell RBC products in a way that can be loosely justified as being vaguely appropriate (but not necessarily best - an important distinction as YOU want what's best for you). The person my mother dealt with didn't even sell her something vaguely appropriate. I believe the only reason I was ultimately able to get this situation reversed was because I said I would complain to the Mutual Funds Dealers Association. RBC wasn't scared by the prospect that i would go through their ombudsman process because that is rigged in their favour and they can guess what the outcome will be, but the Mutual Funds Dealers Association is different. I suspect the fact that I even knew about it made them take me more seriously.

Take your time. Consider all the options. As mutual funds go, RBC's aren't too bad, but you can likely find some that are just as good and have lower fees, or an ETF. If you really don't know what all these things are, then this is not the time for you to invest, and definitely not on the advice of RBC. Don't let yourself get starry-eyed over the possibility of 5%. I can see that it is already happening because you have repeated it. You haven't said, "the return might be 4% or 3% or any other number; you are letting yourself absorb her sales pitch.

Pay down your house or maintain a good nest egg to provide a cushion, and spend some time becoming more familiar with the markets. Then, when the time is right, you'll be able to invest with the confidence that YOU are acting in your best interests, whatever that decision may be.

Two other points.
1. My bad experience was with RBC, but the same shenanigans happen at any bank. The "advisors" (sales reps) are all under considerable pressure to sell products.
2. You have some time before you buy your house. Have you shopped around for a mortgage rate? I am not up on them right now, but it's worth looking around and comparison shopping. A small difference adds up. If you find a better deal elsewhere but prefer to deal with RBC, then go back to your rep with the quotes you've been given and ask them to better it or at least match. Mortgages can definitely be negotiated and often are. As with all the questions you have raised, you have to let them know you are not at their mercy, that you have your own power.

November 13, 2020
9:48 am
dwdrajesh
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Loonie said
(Oaken needs to improve their rates page, because when you click on the Registered section, the short term rates disappear.)

Now, about the mortgage and the alternative investment possibilities...

You will get a lot of different opinions on this, but here is what I have to say:

You need to remember that the RBC employee is not an objective advisor. She is a sales rep. Her job is to sell the most RBC products that she can, and they pretty well always want you to buy their house brand mutual funds. This includes PH&N funds. This part of what I'm saying is simply a fact.
It doesn't mean the advice is necessarily bad but it's not objective. All she is doing is matching up the money you have with her mutual funds roster. Her JOB security depends on selling these funds, and I am not joking. Your FINANCIAL security depends on you knowing what you need and then finding out who can offer you the best deal for what you need. The sequence is very important.

You noted that the 5% is not guaranteed. That's for sure! Repeat that to yourself ten times before you make any decisions. Not only is the 5% not guaranteed, but your capital, the amount you invest, is not guaranteed either.
I realize you have a long time horizon, but you also have a long time horizon for that mortgage. When and if mortgage rates go up, the stock market will likely go down.
How stretched are you with that mortgage? How secure is your income?
If it were me, I would not invest that money. I would put it into the down payment or keep it as a nest egg if I didn't have enough. Your RBC advisor will be crestfallen, but that's what I'd do.

Others will disagree with this advice as they have absolute faith in the markets. But I would say that, these days, 20% down is nothing, especially in the more expensive or volatile housing markets.
It's the other 80% that you need to worry about.
It's my belief that when you are in the first term of your mortgage on your first house, you should act very conservatively with whatever money you have. Wait until you are ten years into that mortgage, assuming a 25 year amortization, before you invest in anything else. And keep paying it down as soon as you reasonably can.
Yes, you might, or might not, end up with more money if you put it in mutual funds, but don't fiddle around in those early years when things can go wrong and you are stuck with big bills.

You also need to look at what other savings you may have. If you don't have any, then I wouldn't put this extra cash anywhere except in non-registered HISA or very short term deposits. You need cash in case something goes wrong with your house - and believe me, it will. Even if it's a brand new house, you will be putting money into landscaping and the equipment you need and want to run a home and perhaps raise a family.

The RBC person's advice is based on the assumption that, basically, things will not change significantly, that past successes are your guide. But it's not the things that you can predict that are the problem. It's only the things you fail to predict or pay attention to. This year provides a great example. And it's the things you can't or don't predict that you need to provide some insulation against.

Full disclosure: I had a horrendous experience with an RBC rep who sold my then-98 year old mother a totally inappropriate mutual fund last year without my knowledge, and then wouldn't let me, as her Power of Attorney, cash it in when mum needed the cash. My mother has zero understanding of mutual funds, and she has a hearing deficit.
The story is much longer and worse than what I have said, but you need to be aware that it is not their job to recommend what's best for you. That's your job, to find out, to learn, to do the research, and to recognize you are dealing with a salesperson. Their only obligation is to sell RBC products in a way that can be loosely justified as being vaguely appropriate (but not necessarily best - an important distinction as YOU want what's best for you). The person my mother dealt with didn't even sell her something vaguely appropriate. I believe the only reason I was ultimately able to get this situation reversed was because I said I would complain to the Mutual Funds Dealers Association. RBC wasn't scared by the prospect that i would go through their ombudsman process because that is rigged in their favour and they can guess what the outcome will be, but the Mutual Funds Dealers Association is different. I suspect the fact that I even knew about it made them take me more seriously.

Take your time. Consider all the options. As mutual funds go, RBC's aren't too bad, but you can likely find some that are just as good and have lower fees, or an ETF. If you really don't know what all these things are, then this is not the time for you to invest, and definitely not on the advice of RBC. Don't let yourself get starry-eyed over the possibility of 5%. I can see that it is already happening because you have repeated it. You haven't said, "the return might be 4% or 3% or any other number; you are letting yourself absorb her sales pitch.

Pay down your house or maintain a good nest egg to provide a cushion, and spend some time becoming more familiar with the markets. Then, when the time is right, you'll be able to invest with the confidence that YOU are acting in your best interests, whatever that decision may be.

Two other points.
1. My bad experience was with RBC, but the same shenanigans happen at any bank. The "advisors" (sales reps) are all under considerable pressure to sell products.
2. You have some time before you buy your house. Have you shopped around for a mortgage rate? I am not up on them right now, but it's worth looking around and comparison shopping. A small difference adds up. If you find a better deal elsewhere but prefer to deal with RBC, then go back to your rep with the quotes you've been given and ask them to better it or at least match. Mortgages can definitely be negotiated and often are. As with all the questions you have raised, you have to let them know you are not at their mercy, that you have your own power.  

Thanks a lot for the great advice. Sorry again that I am not familiar with these things but I think I have a fair idea about ETFs. As I mentioned, with the cash I have, I can pay upto 30% of the price of the house as downpayment but my confusion comes from whether it makes sense to put more than the minimum 20% required to avoid CMHC as downpayment given that the mortgage rates are around 2% now and since the mortgage rate will be fixed for 5 years (correct me if I am wrong here), would be better to put the remaining 10% cash into an ETF for 5 years? After say, 5 years, if the mortgage rates go up really high, I could put a lump sum into paying the mortgage, does this make any sense ? Thanks

November 13, 2020
10:18 am
hwyc
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dwdrajesh said
Sorry, I didnt get it , why did you mention that if I follow the agent's advice of just putting 20% in downpayment and put the rest of my money in a mutual fund, isn't it a wise decision? ...  

No. I didn't say following that path isn't wise. Also not against seeking investments with a higher return. I am saying I'm from a different school - one which taught me not to invest on borrowed money.

Best of luck

November 13, 2020
10:52 am
dwdrajesh
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hwyc said

No. I didn't say following that path isn't wise. Also not against seeking investments with a higher return. I am saying I'm from a different school - one which taught me not to invest on borrowed money.

Best of luck  

Got it, you mean its better not to take risks with the stock market given this uncertain situation we are in. Thanks

November 13, 2020
11:15 am
topgun
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dwdrajesh said

Got it, you mean its better not to take risks with the stock market given this uncertain situation we are in. Thanks  

Everyone is UNIQUE. When I was working I borrowed money at times to invest. I paid off all the money I borrowed. I retired. I pay cash when I want to invest these days. Nothing wrong with each method. If you pay cash then you generally will not over invest. Have fun.

Have a Great Day

November 13, 2020
11:30 am
Norman1
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dwdrajesh said

…, would be better to put the remaining 10% cash into an ETF for 5 years? After say, 5 years, if the mortgage rates go up really high, I could put a lump sum into paying the mortgage, does this make any sense ? Thanks

Not a good idea. In five years time, mortgage rates could be higher and stock markets lower.

Those 5% to 7% per annum returns for stocks are over a long period of time, like 10, 15, or 20 years. Returns on stocks over short periods, like five years, are highly unpredictable.

If you really want to play hedge fund manager and speculate on the spread between mortgage rates and stock market returns, it would be safer to put the remaining 10% towards the down payment. Mortgage payments would be lower. One could then invest the savings on each mortgage payment into stocks.

Houses tend to have surprises and not good ones. Should you, for example, find the heating costs to be higher than expected this winter, then you would be able to stop investing the mortgage payment savings into stocks and use the savings to pay the heating costs until summer.

Also, what would you say if someone recommended that you borrow 10% of the value of your house and put it into the stock market? That's exactly what that RBC agent is trying to get you to do.

Notice the old "Jedi banking mind" trick. Keep the person mesmerized by the difference in rates. The person hopefully won't see that he or she is risking 10% of their house on the stock market.

That's how index-linked GIC's are pushed. Mesmerize the person with the guaranteed return of principal. The person hopefully won't see that he or she is risking the 2% per annum or the 10.4% of their principal that is guaranteed from a regular five-year GIC.

One day, a friendly neighbourhood insurance agent will try it on you for some seg funds. Remortgage your fully paid home and invest it into seg stock mutual funds that guarantee return of original investment if held for at least 10 years.

Look! Stock market returns with a guaranteed return of original investment! Be mesmerized. Don't look: You'll lose 10 years worth of mortgage interest (around 10 x 2% = 20% of the value of your house) if you only get your original investment back in 10 years!

November 13, 2020
12:29 pm
Bill
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dwdrajesh, folks here have covered it all, the pros and cons, the sales job RBC is giving you about potential returns and the silence about potential losses, but be aware the locals here are pretty much very risk averse so that slants what you'll hear here. You may get very different advice on an investment-oriented forum. At the end you have to suit your own personality, what best allows you to sleep at night and be happy in the day, and then act accordingly.

I paid off my only mortgage by age 30, a very sweet feeling. Then I turned by attention to investing mainly in blue chip dividend-payers. I probably would have ended up with more money if I'd not focused on paying off my mortgage and instead started investing earlier, but my personality at that age dictated I be mortgage-free first. So it's not just an arithmetic decision.

I certainly don't have the confidence in the markets that I did when I was younger, and to me it's never a bad move to get out of debt (template old-guy attitudes) so I'd probably throw every dollar I could against the mortgage if I were you. But, again, you're the only one that has to live with the consequences of your decision so make sure you're comfortable with doing whatever it is you choose.

November 13, 2020
12:51 pm
dwdrajesh
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Bill said
dwdrajesh, folks here have covered it all, the pros and cons, the sales job RBC is giving you about potential returns and the silence about potential losses, but be aware the locals here are pretty much very risk averse so that slants what you'll hear here. You may get very different advice on an investment-oriented forum. At the end you have to suit your own personality, what best allows you to sleep at night and be happy in the day, and then act accordingly.

I paid off my only mortgage by age 30, a very sweet feeling. Then I turned by attention to investing mainly in blue chip dividend-payers. I probably would have ended up with more money if I'd not focused on paying off my mortgage and instead started investing earlier, but my personality at that age dictated I be mortgage-free first. So it's not just an arithmetic decision.

I certainly don't have the confidence in the markets that I did when I was younger, and to me it's never a bad move to get out of debt (template old-guy attitudes) so I'd probably throw every dollar I could against the mortgage if I were you. But, again, you're the only one that has to live with the consequences of your decision so make sure you're comfortable with doing whatever it is you choose.  

Makes a lot of sense Bill, I just realized this website is called "highinterestsavings" and not "investment.ca or whatever" 🙂 I understand its completely a personal choice , I dont have anyone to turn to for these kind of questions, so I tend to ask on this forum. The only other 'free' advice you get would be either from a bank representative who has vested interests or from a broker. Thanks a lot again.

November 13, 2020
12:54 pm
topgun
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Bill said
dwdrajesh, folks here have covered it all, the pros and cons, the sales job RBC is giving you about potential returns and the silence about potential losses, but be aware the locals here are pretty much very risk averse so that slants what you'll hear here. You may get very different advice on an investment-oriented forum. At the end you have to suit your own personality, what best allows you to sleep at night and be happy in the day, and then act accordingly.

I paid off my only mortgage by age 30, a very sweet feeling. Then I turned by attention to investing mainly in blue chip dividend-payers. I probably would have ended up with more money if I'd not focused on paying off my mortgage and instead started investing earlier, but my personality at that age dictated I be mortgage-free first. So it's not just an arithmetic decision.

I certainly don't have the confidence in the markets that I did when I was younger, and to me it's never a bad move to get out of debt (template old-guy attitudes) so I'd probably throw every dollar I could against the mortgage if I were you. But, again, you're the only one that has to live with the consequences of your decision so make sure you're comfortable with doing whatever it is you choose.  

Everyone is UNIQUE. I personally had no desire to buy a house that early in my life. Not in an area that I wanted to live. Rent is best. I had a roof over my head. Save. Eventually you save to buy a house in an area you want to live. I know one person that waited until he paid CASH.

Have a Great Day

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