How to Buy a House with Low Income in Canada

Buying a house is probably the biggest purchase of your life. For some people, living in their own homes might remain a dream, but with the right financing, you don’t have to be one of them. Let’s see what you can do to increase your chances of becoming a homeowner in Canada, even if you don’t earn much.

Assessing Your Financial Situation

The first step is understating your current financial situation. How far is the distance between an affordable house and your budget? You need to adopt a frugal lifestyle to shorten this gap and make your dream come true. You can try the following to budget your income and save more money:

1. List all income resources: salary bonuses, freelancing
2. Track fixed expenses: bills, transportation costs, insurance, loan repayments
3. Note down variable expenses: groceries, entertainment, travel, repairs, medical expenses
4. Cross off the items you can live without: dining out, vacation, entertainment

You should constantly monitor your financial behavior and avoid actions that can affect your credit score, such as missing bill payments. The minimum credit score for a mortgage in Canada is 620. You can pay down your balances before due time, apply for credit when necessary, and keep your old credit cards open to improve your credit score.

Mortgage Options for Low-Income Earners

You need to apply for a mortgage to buy a house with a low income, but your financial situation must meet the lender’s terms. Luckily, you have several options to get a mortgage:

• Traditional lenders: Major banks in Canada, such as RBC, are reliable lenders, but they require a solid financial situation and a high credit score, typically 680 or more.
• Alternative lenders: If you don’t qualify to get a mortgage from traditional lenders, you can work with mortgage brokers and private lenders as they offer more flexible terms but charge higher interest rates. For a detailed comparison between alternative and traditional lenders, click on mortgage broker vs. bank.
• Co-ownership: If you can’t still work out a deal with any lender, you can ask an eligible family member or friend to share mortgage payments and ownership with you.

Also read: How to Get a Mortgage in Toronto

Government Assistance Programs

You can benefit from some governmental facilities when getting a mortgage. For example, you can withdraw up to $60.000 tax-free from your RRSP to pay the down payment. Additionally, first-time home buyers can receive up to 10% of the home’s purchase price as an interest-free loan. If it’s your first time buying a house you can find valuable information on first-time homebuyer mortgage options.

Saving for a Down Payment

A penny saved is a penny earned! The assessment of your financial situation and the price of your prospective home can help you set an estimated saving target. You should save at least 20% of your income.

You can arrange an automatic saving plan that automatically transfers 20% of your income into a high-interest savings account. Also, you can benefit from the First Home Saving Account (FHSA), which is a tax-free account that allows you to save up to $40.000 without paying tax. It’s also a good idea to find a part-time job as a tutor, for example, or carry out freelance projects to earn some extra bucks.

Navigating the Home Buying Process

Once your financial situation is in order, you can proceed with the next steps of buying a house. The first step is to get pre-approved for a mortgage. Mortgage preapproval can accelerate the process of getting the mortgage as it clarifies your borrowing capacity for the lender. The process can be tiring, especially if you’re not a fan of paperwork. However, you can ask a real estate agent to break down the process for you or find you an affordable home.

Word of advice: When you choose a house, you should ask a professional home inspector to examine the house and inform you about its condition through a comprehensive, formal report.

Post-Purchase Considerations

Financial considerations don’t end with buying a house. You should budget your money for ongoing costs like maintenance, utilities and property taxes. Your savings should be high enough to cover you for at least three months if things go west (e.g., encountering major unexpected repairs).

Related: Financial Difficulties as a Mortgage Holder

If your home is big enough, you can rent a room to a long-term tenant so that you can pay back the mortgage with less financial pressure. Moreover, you can build home equity by making larger mortgage payments to have greater financial security.

The Bottom Line

The article covered some guidelines on how to get a mortgage with low income in Ontario. There are several governmental initiatives, including HBP and FTHB incentives, that can help you get a mortgage and pay the down payment. You should also try to save a higher portion of your income and cut down on unnecessary items to make buying a house a reachable target.