How to Get Approved for a Mortgage in Canada

To get approved for a mortgage in Canada, focus on maintaining a good credit score, reducing debt, and saving for a sufficient down payment. Lenders evaluate your income, debt-to-income ratio, and financial stability. A mortgage pre-approval can help you understand your budget and increase your chances of approval.

The Road to Mortgage Approval in Canada

For Canadian homebuyers, securing mortgage approval is a critical step in the homeownership journey. With proper preparation and understanding of lender expectations, you can position yourself for success. This guide explores key strategies and answers frequently asked questions to simplify the mortgage approval process.

How Can I Improve My Chances of Getting Approved for a Mortgage?

Boost Your Credit Score: Aim for a credit score of 660 or higher. Pay bills on time and reduce credit card balances.

Save for a Down Payment: A larger down payment reduces the loan-to-value ratio and therefore reduces the risk for lenders.

Reduce Debt: Lower your debt-to-income ratio by paying off outstanding loans.

Maintain Stable Employment: Consistent income reassures lenders.

If you earn $80,000 annually and owe $20,000 in debt, reducing this debt to $10,000 improves your debt-to-income ratio, increasing approval chances.

What Credit Score is Needed to Get a Mortgage in Canada?

Prime lenders require a minimum credit score of 680 for mortgage approval. However, higher scores (700+) unlock better terms and lower interest rates. Borrowers with lower scores may still qualify through alternative lenders but face higher rates and stricter conditions.

Non-prime lenders require a minimum credit score of 500 to 550 to get approved. The lower credit score will be reflected in the pricing of the mortgage.

What Documents Are Required for a Mortgage Application in Canada?

Proof of Income: Pay stubs, T4 slips, or Notice of Assessments.

Credit Report: A record of your credit history.

Down Payment Confirmation: Bank statements or gift letter.

Debt Information: Details of existing loans or obligations.

Providing accurate and complete documentation accelerates the approval process.

How Does My Employment Status Affect Mortgage Approval in Canada?

Stable, verifiable employment with steady income improves approval odds. Self-employed individuals or those with irregular income must provide additional documentation, such as tax returns or business financials, to demonstrate income stability.

What is the Minimum Down Payment Required to Get a Mortgage in Canada?

The minimum down payment depends on the home price:

Up to $500,000: 5% of the purchase price.

$500,001 to $999,999: 5% of the first $500,000 and 10% of the remainder.

$1,000,000 or More: 20% of the purchase price.

For a $750,000 home, the minimum down payment is $50,000 [(5% of $500,000) + (10% of $250,000)].

How Does the Mortgage Stress Test Work in Canada?

The mortgage stress test ensures borrowers can handle future rate increases. Lenders calculate affordability based on the greater of the following:

• Current Rate + 2%

• Bank of Canada’s Qualifying Rate

For example, if your mortgage rate is 5%, the stress test evaluates affordability at 7% (5% + 2%).

Can I Get a Mortgage in Canada if I Am Self-Employed?

Yes, but self-employed borrowers must provide additional documentation, including:

Notices of Assessment from the past two years.

Business financial statements.

Bank statements showing consistent income.

Alternative lenders may offer flexible solutions for self-employed individuals with irregular income.

Can I Get a Mortgage in Canada if I Have Bad Credit?

Yes, getting a mortgage with bad credit is possible through alternative or private mortgage lenders. These lenders focus on the amount of remaining equity available and/or down payment size rather than credit scores. The credit risk will be reflected through higher interest rates and closing costs. Improving your credit score before applying is recommended to secure better terms.

How Does My Debt-to-Income Ratio Impact Mortgage Approval in Canada?

Gross Debt Service (GDS): Housing costs should not exceed 39% of gross income.

Total Debt Service (TDS): Total debt payments should not exceed 44% of gross income.

If your monthly income is $6,000, your total debt payments should stay under $2,640 (44% of $6,000) to meet TDS requirements.

How Long Does the Mortgage Approval Process Take in Canada?

The timeline varies but typically includes:

Pre-Approval: 1-3 business days.

Formal Approval: 1-2 weeks after submitting a complete application.

Delays may occur if additional documentation or appraisals are needed. Working with an experienced mortgage broker can streamline the process.

Getting Approved for a Mortgage in Canada

Securing a mortgage in Canada requires preparation, financial discipline, and an understanding of lender requirements. By improving your credit score, reducing debt, and saving for a sufficient down payment, you can enhance your approval odds. Partnering with a knowledgeable mortgage broker ensures access to tailored advice and competitive mortgage options for your unique situation.