It’s expensive in Canada. Anyone can tell you that. Between overpaying for car insurance to the world’s highest cell phone bills, we’re an expensive nation. Add on to that the high price of real estate and you may be left wondering exactly what you can afford on a $100k salary.

A couple months ago, we learned that you would need an income of $100,000 to buy the average condo in Toronto. Most people don’t make that much money. The median Canadian household income is just $70,336 as of 2015 (the latest info from StatsCan). That’s a gap of about $30,000 per year for half of all households.

But what if you’re in the other half of Canadians that make $100k or more? If you don’t want to live in a Toronto condo, what are your options?

Average Doesn’t Mean Every

First of all, take a breath. Not every condo in Toronto costs the average $560,000. There are plenty of condos both cheaper and more expensive than that. It’s only an average of all the condos in Toronto.

There are currently 2,711 active listings for condos under $560,000 in the GTA. That’s more than the number of listings over $560,000!

Of course, the farther you look away from Toronto, the more listings you’ll find for more affordable prices.

How much can I afford?

Everyone knows you can’t spend 100% of your income on housing. You still have to pay for food, utilities, and actually having fun every once in a while.

Mortgage lenders and the Canadian Mortgage and Housing Corporation (CMHC) know this too, which is why they have two guidelines they follow when deciding whether to approve your mortgage: gross debt service (GDS) and total debt service (TDS) ratios.

GDS

Gross debt service is the total monthly cost of owning your home. It includes your mortgage payment, the cost of heating, and your property taxes. Lending guidelines suggest that your GDS is no greater than 32%, but that can be stretched up to 39% if you have good credit.

GDS is calculated with this formula:

 So if your mortgage payment would be $1,500, heating costs $150, and property taxes $250, your GDS formula would be:

 = 22.8%

Which is excellent!

But $1,500 might be an unrealistically low mortgage payment depending on your location. What if you wanted to buy that average Toronto condo?

Our mortgage payment calculator shows that your monthly payment on that condo (with 20% down) at the best mortgage rate of 2.9% would cost $2,098 per month. How does that affect the calculations?

Still comes in under the GDS threshold!

TDS

But GDS is only half the equation. The other half is the total debt service ratio, which is the monthly cost of your housing plus any debts you may have. A since Canadians collectively owe $1.4 trillion in debt, it’s likely you have some.

Average debt to have is a car loan, student debt, or a line of credit. Your current mortgage or rent payment is ignored for both the GDS and TDS calculations, as you won’t be paying that after you move (hopefully!).

If you have a car payment of $300, student loans of $200, and a line of credit payment of $100, you have an additional $600 per month that’s taken out of your budget.

After plugging in our numbers, we get:

Which is an acceptable TDS ratio.

What does this mean?

If you have a 20% down payment on a $100,000 household salary, you can probably comfortably afford a $560,000 condo.

BUT

and this is a big but

this number assumes you have very little debt and $112,000 in the bank.

Even for people on a salary of $100,000 that may not be the case.

That’s why we created a quick reference table so you can see the max purchase price you should consider for varying levels of debt and cash saved.