How to Buy a House With Low-Income in Ontario

From determining how much you can afford to spend, to homebuyer incentives, to securing a mortgage, we’ve got tips to help lower-income earners purchase a home.

By Emily Southey | 13 minute read

Buying a house is a goal for many Ontario residents. But it can feel like a daunting task, especially with a low income. If you’re wondering whether your income level is high enough to qualify for a mortgage and buy a home in Ontario, you’ve come to the right place. Though buying a house in Canada with a low income may come with a unique set of challenges, doing so is far from impossible. Thanks to the variety of loan options, incentives, and assistance programs available to homebuyers in Canada, homeownership is an attainable goal for anyone regardless of income level. Keep reading to learn more about buying a home with low income in Ontario, including how to determine how much you can afford to spend on a home.

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Can I buy a house with low income?

Yes, Ontario residents with lower-than-average incomes can buy a home ⸺ it just might be a bit trickier to do so. There are no minimum income requirements for buying a home anywhere in Canada. However, mortgage lenders will consider your income level, credit utilization ratio, credit score, and more when approving you for a loan. That said, obtaining a homebuyer loan might be easier than you think, especially once you realize the various programs and incentives you might qualify for. 

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Determining how much you can afford to spend on a home

The first step in the homebuying process is determining how much you can afford to spend on a home. While this is important regardless of the outcome, it is crucial for those with lower incomes, as overspending can cause serious financial stress. To determine your homebuying budget, follow the steps below. 

Calculate your gross household income

First, calculate your gross household income. This is the combined income that you can use to qualify for a mortgage loan. Gross household income may include your employment income, business income, child tax credit, pension, disability benefits, and more. If you are buying a home with someone else, such as your spouse or partner, make sure to include their income as well. Your gross household income is your total income before taxes.

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Consider your current debt level

When determining how much you can afford to spend on a new home with a low income, you will need to consider your current debt level. Mortgage lenders will assess your existing debt when deciding whether to approve you for a mortgage loan and at what interest rate. Do a deep dive into your finances and add up all outstanding debt. This may include student loans, car loans, and credit card payments.

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Determine your down payment amount

When you purchase a house, you will be required to make a down payment. Down payments are most commonly paid for in cash, however, some may be paid for with a mortgage loan or a combination of cash and a loan. To determine how much you can afford to spend on a house, you will need to examine your savings. Your down payment amount impacts how much money a mortgage lender will loan you. The higher the down payment, the better the loan terms. So look at your savings account and consider how much you could set aside for a down payment. Remember that homebuyers are required to make a minimum down payment of 5% of the purchase price in Canada. Most down payments range from 5% to 20%. It’s also worth noting that if your down payment is less than 20%, your mortgage lender may require you to take out mortgage loan insurance, which is another expense to budget for.

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Get pre-approved by a mortgage lender

The next step in determining how much you can afford to spend on a home is to get pre-approved for a mortgage. Mortgage pre-approvals are free of charge and provide homebuyers with invaluable information. A mortgage is a type of loan homebuyers use to purchase a home. Most homebuyers in Canada who cannot afford to buy a home with cash will need to take out a mortgage. If your income is below-average, you will likely require a mortgage loan to finance the purchase of your home.

Mortgage pre-approval is when a mortgage lender reviews the information provided and either confirms or denies that you would qualify for a mortgage loan if you were to submit a formal application. Most mortgage pre-approvals specify a term length, interest rate, and principal amount. The principal amount is one of the most important pieces of information, as it gives low-income homebuyers a realistic idea of what they can afford to spend on a home.

It must be noted that getting pre-approved for a mortgage does not mean you are obligated to apply for a mortgage with a specific lender. Therefore, there is no harm in getting pre-approved for a mortgage from multiple lenders, even if you haven’t decided you want to purchase a home yet. As mentioned, mortgage pre-approval is a fantastic method for low-income buyers to determine whether they can afford to buy a home.

When applying for mortgage pre-approval, low-income buyers should be prepared to provide the following documentation and information:

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• Personal identification: This may include a government-issued ID, such as a driver’s licence, or a Canadian passport.
• Proof of assets: To calculate your net worth, mortgage lenders will require proof of all major assets (cars, leisure vehicles like boats or RVs, or secondary properties, such as a cottage).
• Proof of income/employment: You will need to show proof of income/employment in the form of pay stubs, a letter of employment, or if you are self-employed, recent notices of assessment from the Canada Revenue Agency (CRA).
• Information about your debt or financial obligations: Prospective homebuyers will need to include information about any outstanding debts, such as student loans, car loans, credit card balances, lines of credit, or child support.
• Proof you can afford the down payment and closing costs: Homebuyers can provide recent bank or investment statements as proof of this.

Set a purchase price budget

If you are successfully pre-approved for a mortgage and decide to move forward with purchasing a home, it’s time to set your budget. Your budget should be based on the principal amount provided in your mortgage pre-approval(s). Keep in mind that mortgage pre-approvals are estimates, so just because you were pre-approved for a certain amount doesn’t mean you will get that amount. The final mortgage loan you are approved for will depend on the purchase price of the home you buy, along with your down payment. For this reason, if you have a low income, it is recommended to set your budget slightly below the principal amount listed in the mortgage pre-approval. In determining your budget, you may wish to consult with a REALTOR®. They can give you an idea of the current market conditions and what types of homes are available within your budget. 

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Don’t forget to budget for closing costs

The final step in determining how much you can afford to spend on a home with a low income is to budget for closing costs. Buying a home in Ontario almost always comes with closing costs. Closing costs are a combination of legal and administrative fees due when a house closes. These costs vary based on the purchase price and down payment of the home, but homebuyers should allocate between 1.5% and 4% of the purchase price to closing costs. Typically, homebuyers are responsible for paying 100% of the closing costs. However, you can request that the seller pays for all or some of the closing costs in the purchase agreement. 

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Tips for buying a house with low income in Ontario

Take some of the stress out of buying a house in Ontario with a low income by following the tips below. 

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Improve your credit score

Did you know that your credit score can impact your ability to get a mortgage? That’s right, having a good or excellent credit score can vastly improve your odds of being approved for a mortgage. 

Buying a house with bad credit can be challenging as traditional lenders may not be willing to accept the risk, forcing you to obtain a high-risk loan from a subprime or private lender. To avoid the high interest rates that come with bad credit mortgages, try to improve your credit score before buying a home. To build your credit score, strive to make all loan payments on time and in full, pay down any and all debt that is feasible, and keep your credit utilization ratio (the amount of total available credit you have compared to the credit you use) beneath 30%. Improving your credit score not only gives you better odds of being approved for a mortgage but can also lead to better interest rates. 

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Pay off outstanding debt

Since mortgage lenders will assess your current debt levels when deciding whether to approve you for a mortgage and at what rate, paying off as much outstanding debt as possible can help you buy a home. By reducing the total amount of debt you owe, you will lower your debt-to-income ratio, which can significantly increase your odds of mortgage approval. If paying off your debt is not currently feasible, consider consolidating your debts into one lower-interest loan and use the money you save by doing so to pay off your debt. 

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Get a co-signer

If you are unable to obtain a mortgage on your own due to your low-income status, consider getting a co-signer. In the eyes of mortgage lenders, a co-signer mitigates a borrower’s risk. If the borrower defaults on their mortgage payments, the co-signer will be on the hook for making these payments. Co-signers can be family members or close friends. If you get a co-signer, their financial information will be assessed by the mortgage lender along with yours. 

If you decide to go the co-signer route, make sure to discuss expectations with your co-signer, such as what you will do if you’re in danger of defaulting on your mortgage.