Stop worrying about how you’ll ever afford a home in the GTA, and share a family mortgage.
New to Canada, young, or just not making enough to buy a home? Finding a reasonable place to live is getting harder. Toronto home prices are 10 times most residents’ income, six times in Ottawa. The average house mortgage in Ontario was $474,073 as of March 2022. Toronto homeowners owed $582,141, while Ottawa residents averaged $326,487.
But don’t get shut out of pricey real estate markets like Toronto, Durham, or Oakville that require big incomes and stable salaries. When a new job, pandemic panic, or self-employment throw a wrench in home buying plans, share a family mortgage to get a home you can all afford.
Saving a 20% down payment for a Toronto-area home takes an unbelievable 21 years of working full-time. Shrewd home buyers can share a family mortgage, and get 5% down, high ratio mortgages from any of Canada’s three major mortgage loan insurers.
How much income you need to buy in Ontario
Minimum down payments for home buyers
Can you pass the mortgage stress test?
How can low income families afford a house in Ontario?
How Much Income You Need to Buy a Home
Realistically, home buyers need a $220,000 annual salary, with 20% down, Ratehub.ca reported in July 2022. Mandatory stress tests at banks push the mortgage interest qualifying rate to prove you can afford a home to:
- two percentage points above the interest rate a bank offers you
- or 5.25%, whichever is lower.
Skip the stress test with 20% down by applying to a credit union. Find registered credit unions in Ontario.
Saving the Down Payment
We get this question regularly, “How much money should I save before buying a house in Ontario?” That’s entirely up to you. High ratio mortgages from insured lenders like CMHC, Sagen™, or Canada Guaranty require at least 5% down. Add 5% of the cost of the home for closing costs.
Aim higher for homes over $500,000. Home buyers need 5% for the first $500,000, and 10% for balances less than $1 million. Plan on a conventional mortgage for homes valued at over $1 million, or ask a private mortgage lender or mortgage broker for assistance.
Can You Afford a Family Mortgage?
With prime rates for mortgages at 4.70 in July 2022, you’ll need to show you can still afford the monthly payments if interest rates rose to 6.70%. Yes, even if you put 20% down, or are merely renewing an existing mortgage. Rules for borrowing down payments.
Affording a mortgage is so stressful, in fact, many Ontario families have turned to renting. Before you do that, consider if you could share a family mortgage. Best Places to Buy Cheap Homes in 2022.
How to Share a Family Mortgage
Let’s take an example.
Say Mitzi and Shari finance their up/down two-storey home by pooling their income and down payment with Shari’s parents, her sister Shannon, and Shannon’s partner Bob.
Shari’s and Shannon’s parents pitch in a third ($33,333) towards the down payment on an older, $999,999 four-bedroom Brampton home. They convert the attached garage into a large bedroom. It’s just the right size for a couple in their late 70s. When building permits are needed.
Shannon and Bob move into the main floor master. That leaves Mitzi and Shari with the downstairs in-law suite. They can use the spare bedroom for Shari’s home office. Do business from home.
Buy More House With a Family Mortgage
The parents’ combined retirement pensions, Old Age Security, and Guaranteed Income Supplement equal $43,540 annually. Mitzi is an apprentice mechanic, and Shari is a part-time technical writer for a software company. Their income is $82,000 annually. Shannon does hair, grossing $18 an hour plus tips. Bob is a self-employed courier. Their total income averages $98,000 yearly. Qualify for a private mortgage if your bank turns you down.
How Much Mortgage Can You Afford?
Blending their incomes is the buying power they need for a family mortgage. With 10% down, their bi-weekly mortgage payments, amortized over 25 years, are $3,079.79 over five years at a fixed interest rate of 6.14%. Property taxes are extra. Estimate your mortgage payments.
The family just sneaks in under CMHC’s total debt service ratio of 44%. Total debt service ratio is how much you owe, including PIT — principal, interest, and property taxes on a mortgage — plus heat and debts like credit cards. Having part-time and self-employed income also affects how a bank views mortgage applications.
Their shared family mortgage includes a $27,900 CMHC mortgage insurance fee. The charge protects the housing agency in case the family defaults. See insurance fees for CMHC mortgages.
First-Time Home Buyer Plans
Mitzi and Shari are first time home buyers. That works in their favour.
- Ottawa allows RRSP owners to remove $35,000 tax-free ($70,000 for couples) under its Home Buyers’ Plan for a downpayment. Buyers have up to 15 years to repay it. Mitzi and Shari can use their combined RRSPs to increase the family’s downpayment to 16.99%. Leveraging RRSP Down Payments (scroll to read).
- If they want it, the federal First-Time Home Buyer Incentive Program gives borrowers a loan to increase their downpayment, lowering their mortgage payments and reducing interest costs. The loan adds 5% to the amount available for resale homes, or up to 10% for new builds. They decline, knowing CMHC claims a share of any increases in a home’s equity when it’s sold. A steady climb in house prices could outweigh the advantages of borrowing, they figure. Tips and incentives for first time buyers. https://www.axesslaw.com/articles/first-time-home-buyers/
- The $5,000 federal, non-refundable First-Time Home Buyers’ Tax Credit offers up to $750 in federal tax relief. Some second home buyers and family members with a disability may also qualify for a tax credit. They can look into that one. First-Time Home Buyers’ Tax Credit explained.
Land Tax Rebates for First Homes
Besides tax relief and downpayment assistance, first-time home buyers in Ontario get rebates on land transfer taxes. Toronto gives Canadian citizens and permanent residents a full refund (up to $4,475) for municipal land transfer taxes for new builds or resale homes. The family qualifies for the Ontario rebate, but not the Toronto refund. What are land transfer taxes?
A Happy Ending
All in all, they’re one happy family, with all the space they need, and a single mortgage they can afford. What more could a home buyer ask for? Why you need a real estate lawyer to buy a home.
Affordable Real Estate Lawyers, Anywhere You Are
Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Hiring a virtual real estate lawyer.
Book Legal Appointments Online or By Phone
An Axess Law Ontario real estate lawyer can help you finalize your new home purchase. Licensed real estate lawyers are available 7 days a week, day or evening, by video call. Dial toll free to 1-877-552-9377 or our 647-479-0118 lawyer line in Toronto . Book appointments yourself using our online booking form. In person meetings can be arranged at any of our conveniently located Greater Toronto Area or Ottawa law offices.
Click here to learn more about Axess Law’s real estate law services.