You should be aware of two factors before purchasing a home in Canada:
1) Your household income: Your household income is calculated by adding together your gross salary and your partner’s gross salary. This number is then divided by 12 to determine how many months’ rent you can pay each month.
2) Down payments. Down payments are required to purchase homes in Canada. To qualify for a loan, you must put 20% down on the property value. In other words, you’ll need $40,000 as a cash deposit on the house.
You need to put down at least $5,000 as your down payment. But you might be able to get more than that, depending on what kind of mortgage loan you’re looking for.
Here are 5 Provable Tactics for First Home in Ontario with Low Income
1. Consider Buying a House with Rental Potential
Consider looking for a house with a complete and rentable basement suite. Property types such as duplexes, triplexes, and fourplexes are also viable options.
Buying a house that generates monthly rental income will help you qualify for a mortgage loan despite your low income. Lenders will use the rental income from the property to determine your eligibility for a mortgage loan.
If you own a two, three, or four-unit property, you will live in one unit and rent out the others to make money on a monthly basis. As a result, enough money is generated to pay the required monthly mortgage payment.
Even if you have a low personal income, the income generated by the rental units will help you qualify for a high-mortgage loan.
Let us now turn our attention to lenders. Different lenders will have different policies regarding how much rental income should be included in your affordability calculation. When purchasing a home with rental income potential, a mortgage broker can best advise you on which lender to consider.
Some lenders will only use 50% of the rental income, while others may use 60%, and still, others may go as high as 80%. Consult with your mortgage broker about lenders who have reasonable rental income policies.
The effect of the lender’s policy on the amount of rental income that can be used to qualify for a mortgage.
Let’s say your rental units bring in $2,000.00 of income monthly
50%: $2,000.00 = $1000.00
60%: $2000.00 = $1,200.00
80%: $2000.00 = $1,600.00
85%: $2000.00 = $1,700.00
2. First-Time Buyer Home-ownership Grants
Fortunately, you do not have to take on the daunting task of buying a home on your own. There are a few first-time homebuyer grants in Ontario designed for low-income individuals that you should look into. These grants are administered by various levels of government, including the federal, provincial, county, region, and city.
The Oxford County Affordable Home Grant, the Brantford Homeownership Program, and the Simcoe Affordable Homeownership Program are a few examples of grants. Private organizations also assist low-income Ontarians in purchasing their first home. Look into these grants for the best first-time homebuyer deals.
You might find this blog post useful. Check it out: 5 tips for buying a house in Canada for dummies
3. RRSP First-Time Home Buyers’ Plan
Your Registered Retirement Savings Plan (RRSP) is another excellent source of down payment funds for your first home.
You can borrow up to $35,000.00 tax-free under the first-time homebuyer RRSP plan. If you are purchasing a home with another first-time homebuyer, you can access a total of $70,000.00 through the RRSP First Time Homebuyer Plan.
The money you take out of your RRSP is considered a loan and must be repaid within 15 years. While the RRSP Home Buyers’ Plan is unquestionably a fantastic program for first-time home buyers, there are a few requirements.
They are as follows:
- Being a Canadian resident as a first-time buyer
- Having a written agreement to buy or build a home that is eligible for the HBP
- Assuring that you intend to use your home as your primary residence.
Keep in mind that if you are not a first-time buyer, you must wait four years before being eligible for the HBP again, assuming you meet all other requirements.
In addition to the RRSP Home Buyers’ Plan, the Government of Canada offers a shared equity mortgage plan.
As a first-time homebuyer, you can use this governmental shared equity program to obtain an interest-free shared equity loan for up to 10% of the purchase price of a new home (or 5% of the price of a resale home) to supplement your required minimum 5% down payment.
When the house is sold or after 25 years, the loan must be repaid.
This program, however, has a few eligibility requirements. They are as follows:
- The household income cannot exceed $120,000.
- The property must be worth at least four times your annual household income.
- You must put down at least 5% of the purchase price.
With a shared equity loan, the government becomes a co-owner of your home and shares in the property’s appreciation or depreciation. The government will technically own a 5% stake in your home. When you sell the house, you must repay the loan amount plus 5% of the property’s increased value.
The table below is to illustrates family buying a $500,000 home could save with the federal government shared home-ownership grant.
(note: for illustration purposes only, results subject to change depending upon amortization, interest rate, term, etc.).
| without FTHBI | with FTHBI | without FTHBI | with FTHBI | without FTHBI | ||
|---|---|---|---|---|---|---|
| House Price | $200,000 | $200,000 | $350,000 | $350,000 | $500,000 | $500,000 |
| Down Payment (5%) | $10,000 | $10,000 | $17,500 | $17,500 | $25,000 | $25,000 |
| FTHBI (10%) | NA | $20,000 | NA | $35,000 | NA | $50,000 |
| Insured Mortgage | $190,000 | $170,000 | $332,500 | $297,500 | $475,000 | $425,000 |
| Insured Mortgage + Mortgage Insurance Premium | $197,600 | $174,760 | $345,800 | $305,830 | $494,000 | $436,900 |
| Monthly Payment* | $989 | $875 | $1,731 | $1,531 | $2,473 | $2,187 |
Modified Version: Original Table Source
5. Obtain a Co-Signor
Even with all of the above incentives, grants, and plans, your high debt load may be preventing you from qualifying for a mortgage loan.
Yes, you can have the required mortgage payment income, be employed, have a consistent monthly income, and have your 5% down payment and still be denied for an insured mortgage loan due to your credit.
A lender may require you to co-sign the mortgage loan with someone who has a strong, positive credit history.
A co-signer can be a member of the same family or a close friend.
Conclusion
While purchasing a home in Ontario without a comfortable level of income can be daunting, it is not impossible! If you are looking for hacks to save money for a home, check out the following blog.
Related : How to save for a house in Canada
We have only discussed five tools that you can use to buy your first home in Ontario on a low income.
Other strategies to consider include: opting for a less expensive house option such as a townhouse, semi-detached, or condo instead of a detached house, purchasing a flipped home, or moving outside of major city centers, to name a few.