Real Estate

Calculating The Minimum Income Required To Afford A Home In Toronto: A Comprehensive Guide

Calculating The Minimum Income Required To Afford A Home In Toronto: A Comprehensive Guide
Written by
  • Ashley Howard
| 12 June 2023
Reviewed, 12 June 2023

Table of contents

    Are you dreaming of owning a home in Toronto but are still determining if you can afford it? The first step is determining the minimum income required to afford a home in this booming city. But where do you begin? This comprehensive guide will help you choose the minimum income needed to afford a home in Toronto. 

    We will cover everything from understanding the housing market to factoring expenses like property taxes and mortgage payments. By the end of this guide, you will have a clear idea of what it takes to buy a home in Toronto and how to budget accordingly. So, whether you’re a first-time homebuyer or looking to upgrade, let’s dive into the world of home affordability in Toronto.

    Understanding The Housing Market In Toronto

    The Toronto housing market is known for being one of the most expensive in Canada, with houses selling for millions of dollars. Understanding what it takes to afford a home in Toronto, it’s essential to understand the current state of the market. According to the Toronto Regional Real Estate Board (TRREB), the average home price in the Greater Toronto Area (GTA) was $1,196,101 in May 2023. This price includes all types of homes, from condos to detached houses.

    While this may seem discouraging, it’s important to note that the housing market in Toronto is constantly changing. The market can experience periods of high demand, driving prices up, and periods of low demand, resulting in lower prices. The area where you’re looking to buy can also impact the price. For example, homes in downtown Toronto tend to be much more expensive than in the suburbs.

    It’s also important to note that government policies and regulations heavily influence the housing market in Toronto. For example, the introduction of the foreign-buyer tax in 2017, which requires foreign buyers to pay an additional 15% on purchasing a home, significantly impacted the market. The foreign buyer’s tax increased to 20% in 2022 and now covers all Ontario real estate.

    What Is The Minimum Income Required To Afford A Home In Toronto?

    Now that we understand the current Toronto housing market a little better let’s dive into the minimum income required to afford a home in the city. 

    To determine this, you must factor in various expenses, including”

    •  your mortgage payments (principal and interest), 
    • property taxes, 
    • utilities (heating costs), 
    • a percentage of condo fees (if applicable), 
    • and any other monthly expenses.

    Your housing costs should be at most 30% of your net monthly income. 

    For example, if your net monthly income is $10,000, your total housing costs should be, at most, $3,000 monthly. This calculation includes your mortgage payment, property taxes, and utilities.

    However, it’s important to remember that this is just a guideline. Depending on your financial situation, you may need to adjust this percentage up or down. Additionally, lenders may have their own guidelines for determining how much you can afford to borrow.

    Factors To Consider When Calculating Minimum Income Requirements

    Several factors must be considered when calculating the minimum income required to afford a home in Toronto. 

    Down Payment

    Most prime lenders require a down payment of at least 5% of the home’s purchase price. The rule is that homes with a purchase price of $500,000 or less require a minimum down payment of 5%. 

    Homes with a purchase price between $500,000 and $999,999 require a minimum down payment of 5% on the first $500,000 and a minimum of 10% down on the remaining amount. Homes with a purchase price of $1,000,000 or more will require a minimum down payment of 20%. 

    Interest Rates

    The interest rate on your mortgage will impact your monthly mortgage payment. It’s important to shop around for the best rate and consider the impact of rising interest rates on your budget.

    However, contrary to popular belief, you won’t be offered the lowest rates for putting down 20% or more. Still, this option can reduce your mortgage carrying costs if affordability is an issue. You can obtain the best mortgage rates by putting down 5% (5% on the first $500,000 and 10% on the remainder, or 20% if the purchase price is $1,000,000 or more). 

    Property Taxes

    Property taxes can be a significant expense though property taxes in Toronto are one of the lowest in Ontario. This can be attributed to higher real estate prices and the larger population since this equates to more taxpayers funding the city’s operating budget. Rates will vary each year, and the amount you pay will depend on your property’s assessed value and type of home. 


    Heating costs must be considered when calculating the minimum income requirements. Most lenders will estimate heating costs at a flat rate of $150. Heating is the only utility factored into affordability and is part of the gross debt service (GDS) ratio used. Typically, your GDS must be at or under 32% for uninsured mortgages and 39% and under for insured mortgages. 

    Cost Breakdown Of Owning A Home in Toronto

    To better understand the minimum income required to afford a home in Toronto, let’s break down the costs of owning a home in the city.

    Mortgage Payment

    Your mortgage payment will be your largest expense when owning a home. The amount of your mortgage payment will vary greatly depending on the price of the home, the interest rates available to you, and the amortization period

    You can estimate what you can afford monthly by starting with your net monthly total income and subtracting monthly expenses. 

    Your expenses should include credit card payments (3% to 5% of the balance owing), car and student loans, and other debts. 

    This calculation should include property taxes, utilities, and home maintenance costs. Using the 30% rule, you can estimate how much you can afford as a mortgage payment by keeping your total housing costs at no more than 30% of your net monthly income. 

    Property Taxes

    The amount you pay for property taxes will depend on your property’s assessed value and the type of home. For residential property in Toronto, the 2023 tax rates range from 0.666274% to 1.127848%. 

    If we use the average home price from May 2023 of $1,196,101, depending on the type of property purchased, your property taxes range from around $7,969.31 to $13,490.20 if you purchase an average-priced home in Toronto. 

    However, property valuation assessments by Ontario’s Municipal Property Assessment Corporation (MPAC) usually lag a few years, so property taxes are typically calculated on values lower than the purchase price.


    Utility costs, including hydro, water, and gas, can also be high depending on the size and type of home. The amount you pay will depend on your consumption and the rates in your area. You can estimate what your hydro bill might look like by using the Ontario Energy Boards bill calculator

    Maintenance and Repairs

    Owning a home involves many additional expenses, including maintenance and repairs. Budgeting for these expenses is important to ensure you can keep your home in good condition. A good rule of thumb is to use the 1% rule setting aside 1% of your home’s purchase price each year for maintenance and repairs. Using the average home price in Toronto, you would be looking to set aside approximately an additional $12,000 annually for unexpected repair costs. 

    Home Insurance

    Home insurance is a necessary expense when owning a home. The cost of your insurance will depend on the value of your property, the location of your home, and the amount of coverage you require.

    How to Save for a Down Payment

    One of the biggest hurdles to homeownership is saving for a down payment. While it can be challenging, there are several strategies you can use to save for a down payment on a home in Toronto.

    Set a Savings Goal

    Start by setting a savings goal for your down payment. Determine how much you need to save by looking at real estate prices in the areas of the city you are interested in and then create a savings strategy to reach your goal. One of the best ways to meet this goal is by automating your savings by setting up automatic transfers into a savings account. 

    Reduce Your Expenses

    Cutting back on expenses can help you save more each month. Look for areas where you can reduce your spending, such as eating out less or cancelling subscriptions you don’t use.

    Increase Your Income

    Increasing your income can also help you save money for a down payment. Consider taking on a side hustle, negotiating a raise at work, or selling items you no longer need for some quick cash that you can put directly into your savings.

    Take Advantage of Government Programs

    Several government programs are available to help first-time homebuyers save for a down payment. These include the RRSP Home Buyer’s Plan (HBP) and the First-Time Home Buyer Tax Credit. There are also many other government grants available to help offset the initial costs of owning a home, with some incentives exclusive to Ontario residents

    Mortgage Options for First-Time Homebuyers

    If you’re a first-time homebuyer, there are several mortgage options available to help you finance your home purchase. 

    Fixed-Rate Mortgage

    A fixed-rate mortgage is a type of mortgage that has a fixed interest rate for the entire term of the mortgage. This can provide stability and predictability in your monthly mortgage payments since you know exactly how much goes toward the monthly principal and interest. Fixed rates take the guesswork out of budgeting since there are no payment fluctuations making it easier to get used to your new obligations.

    Variable-Rate Mortgage

    A variable-rate mortgage is a type of mortgage that has an interest rate that can fluctuate based on the lender’s prime rate. With variable rates that have fixed payments, if rates increase, more of your payment goes toward the interest portion of your mortgage, while if rates decrease, more of your payment will go toward the principal. If the variable mortgage has adjustable payments, you would see the interest portion of your payment either increase or decrease with fluctuations in the lender’s prime rate. 

    Additional Expenses to Consider When Buying a Home in Toronto

    When buying a home in Toronto, there are additional expenses to consider beyond the purchase price and monthly mortgage payments. 

    Closing Costs

    Closing costs include legal fees, land transfer taxes, and other expenses associated with closing on purchasing your home. These costs can add up quickly, so ensure you budget for them when assessing your finances to afford a home. Typically you should budget 3% to 5% of the home’s purchase price to cover these expenses in addition to your down payment. 

    Moving Expenses

    Moving expenses can include the cost of hiring movers, packing supplies, and any other expenses associated with your move.


    If you’re buying a fixer-upper, you may need to budget for renovations and repairs. These costs can include everything from updating the kitchen, overhauling the electrical wiring, or fixing the roof. You can also budget for upgrades, such as putting up wallpaper, a fresh coat of paint, or upgrading light fixtures. 

    Alternatives to Buying a Home in Toronto

    While owning a home in Toronto is a dream for many, it’s not the only option. There are several alternatives to buying a home in the city, such as renting, co-ownership, and rent-to-own. 


    Renting may be a more affordable option for those still deciding whether to commit to homeownership. While you won’t build equity by renting, you won’t be responsible for maintenance and repair costs. Renting provides much more flexibility to move around if putting down roots right now doesn’t sound appealing.


    Co-ownership involves purchasing a property with one or more individuals. This can be a more affordable option as you can split the cost of the down payment and monthly mortgage payments. This option is great for a group of friends who want to live together for the foreseeable future and could offset many household costs by pooling resources to buy groceries and other basic necessities for the home. Co-ownership is a great way to build equity to save up a bigger down payment toward purchasing your own home. 


    Rent-to-own involves renting a property with the option to purchase it later. While this can be a good option if you need more time to save for a down payment or improve your credit score, it’s important to consider all the pros and cons of this option.

    Final Thoughts

    Buying a home in Toronto can seem out of reach, but with the right information and planning, it’s possible to make it a reality. By understanding the housing market, factoring in expenses, and budgeting to save towards your down payment, you can determine what’s needed to afford a home in the city. 

    You can find a more affordable way to live in Toronto by exploring alternatives to buying a home. Whether you’re a first-time homebuyer or looking to upgrade, this guide will help you navigate homeownership in Toronto.

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