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What it means to be house poor — and how to avoid it

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So, you’ve managed to escape the financial hellscape that is renting in most Canadian cities right now. You’ve wrangled a mortgage, homeowners insurance, furnishings, and the oh-so-unexpected costs that inevitably appear the moment the keys are in your hands.

But now, if you haven’t been careful, you’ve gained a new problem: you have a home, but you have next to no money left each month after covering all your housing expenses.

That predicament is called being house poor, and it may be starting to affect more and more Canadians as interest rates keep rising and the cost of goods remains high. According to Statistics Canada data, for instance, in May the mortgage interest cost index (which measures changes in the amount of mortgage interest Canadians owe) increased at the fastest pace on record for a third consecutive month.

What does it mean to be house poor?

When you’re house poor, the vast majority of your monthly income is going toward housing expenses, leaving you with very little leftover money — or in the worst cases, none at all — for things like savings, investments, and other living expenses.

How do you know for sure if you’re house poor? According to the Canada Mortgage Housing Corporation (CMHC), you shouldn’t be spending in excess of 32% of your gross monthly income. That means, if you’re earning $6,000 a month pre-tax, you should be spending no more than $1,920 on your home expenses. This is referred to as your gross debt service (GDS) ratio. If you regularly exceed it, you might be house poor.

Your mortgage payment isn’t the only monthly budget item that can contribute to your house poverty, either. This calculation also includes costs like home insurance, property taxes, and utility bills. That’s why it’s important to find out this information before you buy. Your realtor can ask for average utility bill costs and for the property tax assessment for the home you’re looking to purchase. Even if you’re a first-time homebuyer, these household bills, while they can fluctuate, shouldn’t be left as a surprise.

How much house can I afford based on my salary?

Using CIBC’s mortgage affordability calculator, and assuming a $40,000 down payment saved and no other loans or debts owing, here’s an estimate of how much house a person in Ontario could afford based on different salaries.

Annual Gross Income Maximum Purchase Price Mortgage Amount*
$50,000 $188,344 $148,344
$60,000 $223,083 $188,209
$70,000 $257,822 $223,921
$80,000 $292,561 $260,390
$90,000 $327,300 $296,206
$100,000 $362,038 $332,021
$110,000 $396,777 $367,837
$120,000 $431,516 $407,177
$130,000 $466,255 $443,305
$140,000 $500,994 $479,434
$150,000 $535,733 $515,562
$160,000 $570,471 $551,690
$170,000 $605,210 $587,818
$180,000 $639,949 $623,947
$190,000 $650,000 $634,400

*Mortgage amount figures include the cost of mortgage default insurance. Figures are based on a five-year fixed-rate mortgage at 5.99% interest, an amortization period of 25 years, a monthly property tax payment of $261.25, and a monthly heating bill of $175.

Housing expenses to consider

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Mortgage payments

Chances are good your mortgage payments will chew up the largest part of your monthly income. Whether you have a fixed- or variable-rate mortgage, whether you had to purchase mortgage insurance, and the amount of your down payment will all factor into how affordable your monthly mortgage payment will be.

According to Equifax, which used data shared by the CMHC, the average monthly payment for new mortgage loans in Canada in the first quarter of 2023 was $1,984.

Property taxes

If you own a home in Canada, you’ll also have to pay property taxes. You can have these rolled into your monthly mortgage payment as well.

You can ask your realtor about the costs the previous owners were managing, but you should also keep an eye on municipal tax rates yourself. Many municipalities offer online tools where you can calculate these costs without much effort.

Repairs and renovations

If you’re shifting from the rental market, it can be really tempting to look at your rental costs and wonder what you could afford comparatively if you owned your own home. But there’s much more to homeownership costs than this.

It’s important to think about unexpected costs, such as roof repairs, tree removal, or any renovations necessary to make the home fit your needs. Perhaps you or your spouse uses a wheelchair and thought you could make the house work without a chair lift, but discover that you can’t. These kinds of unanticipated expenses are why an emergency fund is crucial.

How much of my income should be going toward my monthly mortgage payment?

With the 32% GDS ratio in mind, below is a chart that suggests approximate maximum monthly household expenses.

Annual Gross Income Recommended Monthly Maximum Home Expenses
$50,000 $1,333
$60,000 $1,600
$70,000 $1,866
$80,000 $2,133
$90,000 $2,400
$100,000 $2,666
$110,000 $2,933
$120,000 $3,200
$130,000 $3,466
$140,000 $3,733
$150,000 $4,000
$160,000 $4,266
$170,000 $4,533
$180,000 $4,800
$190,000 $5,066

Ways to avoid becoming house poor

Becoming house poor isn’t inevitable, so long as you go into your home purchase well-prepared. Here are some ways to do that:

  • Work within your means.

    That large house on the hill that you could stretch your budget for might look nice. But if your mortgage payment goes up, your job situation changes, or your area gets hit with a cost of living crisis, you’re going to wish that you had gone with something more affordable.

  • Have an emergency fund built up before you buy.

     Imagine that small leak you found during the house inspection turns into a serious issue earlier than you expected. Or maybe six months into homeownership, your employment status changes. Whatever the reason, having a financial safety net is a must when buying a home, so that you don’t go into debt to cover unexpected costs.

  • Keep close track of your housing expenses, particularly maintenance costs.

    If your utility provider offers standardized payments, consider selecting that option. That way, your utility costs, while they may fluctuate from year to year, stay consistent month to month, allowing for easier budgeting.

  • Know your options early.

    Can you refinance? Can you look at a different job that might open up more options for discretionary spending? Do you have an extra living space where you could take on a tenant? And, more drastically, it’s also important to keep track of what the situation would be where you would need to downsize.

Is there a way to escape being house poor?

If you find that after covering housing expenses, you’re left with little to no money at the end of each month, it’s probably time to seek help.

When you’re house poor, it can feel like there’s no way out but it’s important to remember there is. First, look for ways you can substantially reduce your monthly spending. Next, speak with your mortgage lender and see if refinancing could lower your monthly mortgage payments. Doing this will require a deep and honest conversation. If that’s not possible, they might recommend searching for additional sources of household income.

If none of these options work, you may need to seriously look at selling your home or downsizing to something smaller. Whatever you do, don’t panic. Enlist the help of a trusted professional and follow their advice.

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