To qualify for a mortgage in Canada, it’s key to demonstrate to a lender your financial stability and that you can afford the mortgage payments you are applying for. This most commonly comes down to income, credit score, and down-payment amount. To receive approval requires a lot of work and a thorough understanding of how lenders complete their assessments.

Here is what you can do to get approved for a mortgage in Canada.

What To Know About Income For Mortgage Approval

Lenders need to know you have a stable, sufficient income for a mortgage. Most lenders calculate this using GDS/TDS; a Gross Debt Service (GDS) ratio of 32% and calculate Total Debt Service (TDS) which you will want to keep under 40%. Calculate these ratios carefully. GDS refers to housing costs, including all mortgage payments, property taxes, heating, and additional fees. TDS refers to all debts, not strictly household. This includes car payments, credit card bills, and loans.

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Understanding Credit Scores For Mortgage Approval

Credit scores range from 300 to 900 in Canada. To qualify for a mortgage with a prime lender, a credit score of at least 600 is required. For the best interest rates and mortgage terms, it’s essential to establish a credit score above 680. While you can go to an alternative lender if you have a lower credit score, they may still choose to approve but at a higher interest rate.

Strengthen Your Credit Score With These Pre-Approval Tips

• Pay your bills on time.

• Keep credit balances low.

• Avoid applying for multiple loans or credit cards.

• Check your credit report for errors. Dispute inaccuracies.

Consistent financial behaviour over time is the best strategy to improve your credit score for mortgage approval.

Prepare For The Mortgage Stress Test

The mortgage stress test in Canada ensures you are able to handle higher interest rates. A homebuyer must qualify for their mortgage at either 5.25% or 2% above your current rate. Whichever is higher. To receive mortgage approval, you are required to pass the stress test.

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Why Mortgage Pre-Approval Is Important

Pre-approval refers to a lender’s estimate of how much you can borrow based on a preliminary review of your finances. Pre-approval is important because it gives you a budget, strengthens your offer in a highly competitive market, and typically will hold the rate for 90-120 days. In markets like Toronto, ensure you get mortgage pre-approval as it will avoid wasting time on homes outside of your price range.

Prepare Your Documents For Mortgage Approval

For mortgage approval, you need proof of income (such as pay stubs and employment letters), bank statements, your credit report, tax returns, and proof of down payment. Lenders prefer full-time, permanent employment with a steady income history. Self-employed individuals will therefore need to show more evidence of income stability, including tax returns, financial statements, and more.

Plan For Mortgage Approval Years In Advance

It can take years to get your finances to where they need to be to obtain the best mortgage rate and terms. In an ideal world, set aside five years to build your credit, establish a strong income, and save for your down payment. The stronger your finances and the more data you have to support your current financial status, the more likely a lender will want to work with you, the more likely you’ll be approved for a mortgage, and the better the rate and terms will be.

Are you considering a mortgage for buying a home in Etobicoke or Toronto? Let us help you find a property that suits your mortgage pre-approval budget and your preferences. Reach out to the experts at Adrian + Andrea at info@adrianandrea.com or call (416) 319-6893 for more information.