How to overcome these mortgage affordability hurdles

Over the last several years it’s become harder and harder to afford a mortgage in Canada. Housing prices have gone up substantially in major markets. And even in places where real estate has begun to cool off, prices are still more than double what they were 10 years ago.

To address the massive run-up in prices, governments took steps to protect against a crash. Among the measures were several waves of new rules that made it harder to qualify for a mortgage. The theory is that those who do qualify would have wiggle room in their budgets for when interest rates started going up.

These protective measures may be for the greater good, but for homebuyers in Canada it’s never been harder to afford a mortgage. Fortunately, it’s not an impossible task and there are ways to overcome some of the biggest hurdles to affording a mortgage.

Mortgage affordability: the magic formula

To determine whether you can afford, or qualify for a mortgage, lenders use a simple formula called your debt service ratio.

Your debt service ratio is your income divided by all of your housing costs. The total cost of your mortgage (principal and interest), property tax, heating, and 50 per cent of condo fees can be no more than 39 per cent of your pre-tax income. This is known as your gross debt service ratio.

A separate calculation, your total debt service ratio, adds your other debts such as credit cards and car loans to the equation. Your housing costs plus all other debt can be no more than 44 per cent of your income.

These formulae contain the biggest hurdles Canadians have when it comes to affording a mortgage. Let’s look at them one by one:


Your mortgage affordability is a percentage of your income, so making more money should equal approval for a bigger mortgage.

But if making more money were easy, we all would have done it by now. Assuming you can’t go to your boss and demand a massive raise, there are two ways to increase your income: Taking on a side hustle or becoming a landlord.

A side hustle is a part-time gig you do in addition to your normal job. You could work retail on weekends, start freelancing, or start a business. Self-employment income is harder to get credit for on a mortgage application than full-time work, but it may help your case.

The other option is to look for a property with a second unit you can rent out. If the second unit is already tenanted when you buy the home, you can usually get count half the rent as income for your mortgage application. There are lots of extra rules when you’re using rental income to qualify for a mortgage, so make sure your realtor and mortgage broker are on the same page about your expectations.


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