Urban Mortgages on an Extreme Budget

Minimum-wage-mortgage-optionsEver wondered what kind of mortgage you can get on minimum wage in a big city?

Minimum wage in Canada ranges from $9.75 per hour in Alberta to $11 in Nunavut. In Ontario and B.C., it’s $10.25.

Using standard insured lending guidelines, someone earning even $11 per hour and working 40 hours a week could theoretically qualify for a $118,000 house.1

Out of curiosity, we searched every MLS listing within Toronto, Montreal and Vancouver city limits for such a property.

We figured it would be a tall order to find properties accessible to a near-minimum wage earner in these cities, and it was. Out of thousands of real estate listings, there wasn’t one home that was cheap enough for an $11-an-hour employee to get a typical high-ratio mortgage on.

Interestingly, Toronto had numerous condos that met the price criteria (some as low as $80,000). But the condo fees in each case lifted the gross debt service (GDS) ratio of our hypothetical applicant well above the 39% government-set limit. That would immediately dash the mortgage approval hopes of any such borrower.

min-wage-home-optionsWe also found a nice mobile home in West Vancouver, B.C. of all places—one of the most affluent locales in the country. But despite an $89,000 price tag, the obligatory monthly “pad rental” fee would jack up a minimum wage applicant’s GDS ratio and thwart approval.

In experiments like this, it quickly becomes apparent that employees at a subsistence-level income can’t go it alone when buying in our major cities.

For most near-minimum wage earners who don’t have down payment help, finding a co-applicant is often the only hope they have of buying in Canada’s biggest cities.2


1 Assumes good credit, 5% down, no other debt and a lender that’s comfortable with the borrower’s employment stability.
2 Down payment help can sometimes come from things like a family gift/loan or municipal housing programs.

Rob McLister, CMT

  1. The comment on mobiles was interesting. There are only a couple of lenders that will mortgage a mobile. The mortgage killer aspect is not usually the GDS ratio but the fact that it is on rented property. In Ontario large corporations have bought up most of the small trailer parks. A criteria for a mortgage approval is that the lender is allowed on the property to access the mobile if the owner goes into default. Because it is private property they cannot do this without approval of the park owner. It is not uncommon for the park owners to not give their approval. Without this approval lenders will not commit to a mortgage.
    They also look at the age of the mobile. Any mobile older than 25 years will not be considered. If a mortgage is given on a newer one they may not go the full 25 years.

  2. Thanks Doug. Mobile home financing is indeed a story in itself. On top of the limited lender selection and points you mention, lenders often impose higher down payment requirements and higher rates as well, among other conditions.

  3. Really eye-opening investigation, Robert, and it makes me appreciate organizations like Habitat for Humanity. But there’s no question home ownership is out of reach for a lot of working families in major centres.

  4. I think that it should be noted that home ownership is not a good solution for everyone. I have no doubt Rob knows this but it’s not explicit in this article. There are a lot of financial situations (or market situations) that are best suited for renting.

  5. Hi Jarvis, Yep, as a renter myself, I know that well. :) We can’t get into the appropriateness of home ownership in every post, but you’re certainly right that it’s not for everyone. Cheers…

  6. It would be very interesting to run these numbers in the state of Florida and see what the results would be. Trailer park living is a way of life for many. It may help President’s Obama in his attempt to raise the minimum wage level to $10.00 over there.

  7. These results aren’t surprising to anyone I think. Whether renting or carrying a mortgage, money will typically be tight for anyone on minimum wage.
    I’d like to see a study into what a ‘living wage’ might look like. Perhaps something a kin to the following:
    The wage you would need to:
    – Own or Rent an average 1 bedroom condo in city X
    – Save an average of $X.XX per month
    – Afford carrying costs on a mortgage/ or insurance costs as a renter
    – Afford $X.XX for food/utilities/entertainment
    – Afford $X.XX for transportation
    – Afford $X.XX into a emergency fund
    – Afford $X.XX towards a retirement or investment fund
    Without attempting to run these numbers, one might find that current salaries/wages will be found wanting; hence the adventure into debt that many Canadians take.

  8. I am shocked that there is no place someone on min wage could afford in a city of 2.6 million people. Tim Horton workers must commute a long way.

  9. I live near an industrial park that is just south of my neighborhood in Toronto. They just built 3 level town homes with a 1 car garage and enough front yardage that you could use scissors to cut the grass, and they are going for $550K+! It just boggles the mind.

  10. Definitely pushing a lot of young people away from the city. (especially Vancouver). Most of the people my age find work out of province, work for a few years, save and then come back. This seems to be the solution for most trade workers that can find higher paying jobs east of Vancouver.

  11. It would be interesting to see this assessment in locations that are not the most expensive cities in Canada.

  12. Why am I not surprised by these findings? Even if one is making $32,000 a year, trying to buy a house if out of the question. On the other side, renting is no cheaper given the outrageous rents in most cities.

  13. TD just gave me 5.14%, 5 year, 15 year amortization on a 20 year old registered mobile with land purchase in rural area of Coquitlam. That was the best we could do. Anyone done better recently?

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