This month, we’re focusing on income — the same thing your lender will focus on! Below we explore the type of home and mortgage you can get at different income levels, how to get it, and what the monthly payments would look like. As you’ll find out, homeownership isn’t as impossible as it’s sometimes made out to be.
A mortgage on a modest income…
If you make minimum wage in a full-time position, you’re making roughly $31K before tax. In Ottawa, this situation means you’re unfortunately priced out of the market… by yourself at least. If purchasing a home is your goal, make sure to take steps now to plan for the future and set yourself up for success.
- Pay down debt (credit cards, car loans, outstanding bills, etc.)
- Find ways to save money using the appropriate savings vehicles
- Partner up with someone like a family member or friend to boost the combined income being used for qualification
Two to four people each making $31K before tax could buy a property that will house all four people and build equity as a group. Sacrifice a tiny bit of space and privacy to start building your home equity now. Take a risk and get something instead of nothing!
A middle-income mortgage…
If you make between $50K to $70K a year before tax, you’re well on your way to being able to afford your first home. The key in this income range is to get your household income to $100K. You’re probably thinking that a $30K raise is much easier said than done — you’re not wrong! That said, you can ask someone who makes $30K or more per year to help you.
Teaming up with someone is the easiest option here and could be your:
- Romantic partner
- Friend (that’s how I started!)
- Parent
- Grandparent
As long as we can get the total income up to $100K, more options become available making homeownership that much more possible! There are also legitimate concerns when it comes to real estate partnerships. We’re often asked…
| What if I break up with my partner? | You’ll want to have a co-habitation agreement written up before you buy the place. |
| What’s a co-habitation agreement and where do I get one? | A co-habitation agreement is a legal document between you and your partner outlining what happens in different what-if situations including a breakup, if one of you has more income, expectations of how bills and finances are going to be handled, etc. Work it out with your lawyer before you purchase. |
| What if a payment gets missed? | As a co-signer, it is as much your responsibility as the other borrowers and you will be held accountable if they miss a payment. |
| So I better keep in touch with them and make sure I know what’s going on? | Exactly, if you’re going to co-sign, there needs to be open communication in case there’s financial trouble. |
| What if somebody dies? | It’s a difficult question but still needs to be addressed. Since it’s real estate, everyone needs two things — life insurance and a will. The bank (nor I) will make you get these but I will tell you it is something you should do. |
| Why would I need insurance and a will? | The insurance will cover some of the costs and the will can explain how your percentage of the home needs to be handled (as it may not automatically go to your co-borrower). |
Mortgage qualification with a higher income…
If you make $100K in combined income or a bit more a year, you can buy a pretty sweet condo in Ottawa (average of around $440K)! Assuming a minimum down payment of 5% ($22K) on a 25-year amortization, $3K in annual property taxes, and $450 a month in condo fees, your monthly payment will be around $1,850 (on a variable rate of 2.05%). I know, much less than you thought right?
If you make between $125K to $150K in combined income a year, then you can buy the average townhome (or semi-detached) in Ottawa (average of around $745K). Assuming a 20% down payment ($149K) on a 30-year amortization, $5K in yearly property tax, your mortgage payment will be about $2,215 per month (on a variable rate of 2.05%). Where did all that extra down payment come from? In cases like these, we often see gifted income or there’s money from the sale of a previous home.
Wondering how much income you need to buy a million-dollar home? If you make between $150K to $200K (combined income), then congratulations! You can buy a million-dollar home in Ottawa. Assuming a 20% down payment (which in this case you need) on a 30-year amortization, roughly $8K a year in property tax, your monthly mortgage payment will be about $2975 (on a variable rate of 2.05%).
Disclaimer: Please note that all these hypothetical situations are assuming zero debt and good credit standing.
Contact the Kyle Miller Mortgage Agent team to learn more about your income situation and how it can affect your mortgage application process. We’ll provide you with different options and possibilities so you get the best deal possible!
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