How to Get Approved for a Mortgage in Canada

If you’re thinking about buying a home, getting a mortgage is a big part of the process – but for many, it can also be a big source of stress. Concerns about credit history, income, or existing debt often leave potential buyers feeling uncertain about their chances of approval.

Lenders look at these factors closely, but with the right preparation, qualifying is still possible. Understanding how mortgage pre-approval and approval work can help you plan ahead and avoid surprises along the way. In this article, we’ll walk you through the requirements and tips to boost your chances of buying a home.

Not sure where you stand on mortgage approval? Credit Canada’s new Keys to Home Confidence program offers free resources and coaching to help you plan with clarity and confidence. Learn more here. 

Understanding Mortgage Approval vs. Pre-Approval 

Before house hunting, it’s important to understand the difference between mortgage pre-approval and approval. Pre-approval estimates how much you could borrow based on your income, credit, and debts. It helps set a budget and shows sellers you’re serious, but it’s not a guarantee. Approval happens after you make an offer and includes a full review of your finances and the property. In Canada, pre-approvals usually last 60-120 days, depending on the lender. 

Many people think a pre-approval means they’re fully approved, but that’s a common misconception. Here’s how pre-approval and approval compare: 

What Lenders Look For in Canada 

Income and Employment Stability 

Lenders need proof of steady employment and reliable income, such as recent pay stubs, T4 slips, and your last two CRA Notice of Assessments. These documents help verify you have a reliable income to cover your mortgage payments. 

Credit Score and History 

A credit score of 680 or above is required to qualify for the best mortgage rates in Canada. Some mortgage providers accept scores between 600 and 679, but may charge higher interest rates.

The higher your credit score, the more options lenders can offer in terms of mortgage products and interest rates. Late payments, collections, or bankruptcies can hurt your application because they suggest you might have trouble repaying your mortgage.

Debt-to-Income Ratio (GDS and TDS)

Lenders use two key formulas to decide if you can afford a mortgage: Gross Debt Service (GDS) and Total Debt Service (TDS). GDS looks at how much of your income goes toward housing costs, like your mortgage, property taxes, and utilities. TDS includes those costs plus other debts, like credit cards and loans. Most lenders want a GDS below 39% and a TDS under 44%. Higher ratios suggest your budget may be too tight, which can make approval harder or lead to stricter terms.

Down Payment Size and Source 

In Canada, the minimum down payment is 5% on the first $500,000 of a home’s purchase price, plus 10% on the portion between $500,000 and $1.5 million. Homes priced at $1.5 million or more require a minimum down payment of 20%.

This means the percentage is applied to different portions of the purchase price, rather than one percentage being applied to the entire price. For example, a $1 million home would require a minimum down payment of $75,000: 5% of the first $500,000 ($25,000), plus 10% of the remaining $500,000 ($50,000).

Lenders also pay attention to where the money is coming from. Savings or RRSP withdrawals are preferred, while borrowed funds can be a red flag because they add to your overall debt. A larger down payment not only improves your chances of qualifying but also lowers your monthly payments and reduces mortgage insurance costs.

Other Considerations 

The age and type of property you want to buy can affect a lender’s approval because older homes may carry more risk or be harder to sell if the mortgage defaults. You also need to pass the mortgage stress test, which checks if you can afford payments if interest rates rise.

If your credit score or income isn’t strong enough, having a co-signer or guarantor can help. This is someone with stronger finances who agrees to take on responsibility for the mortgage if you can’t make payments, providing extra security for the lender.

Steps to Improve Your Chances of Getting a Mortgage 

Pay Down Existing Debt

Lenders want to see that you can manage your current financial obligations before taking on more. Paying down high-interest debt, like credit cards or unsecured loans, can improve your debt-to-income ratio, a key factor in the approval process.

Improve Your Credit Score 

A higher credit score not only improves your chances of getting approved but can also help you secure better interest rates. To boost your score, make all your payments on time, keep your credit utilization low (ideally under 30%), and check your credit report regularly for errors that could be dragging it down.

It’s also important to understand that rebuilding credit takes time. That means home buyers should start checking their credit reports and fixing errors 6 to 12 months before applying for a mortgage pre-approval, as credit bureau updates don’t happen overnight.

Save for a Larger Down Payment 

A larger down payment reduces your mortgage amount, lowers your monthly costs, and can help reduce or eliminate mortgage insurance. It also shows lenders you're financially prepared for homeownership, making you a stronger applicant overall. 

Avoid New Credit Applications

Applying for new credit before or during the mortgage process can temporarily lower your score. This includes taking on new debt between pre-approval and approval, which is a common mistake that gets borrowers into trouble. This can raise concerns about your financial stability among lenders. To keep your profile steady, hold off on new credit applications until your mortgage is finalized. 

Get Professional Financial Guidance 

Buying a home can feel overwhelming, especially if your finances aren’t perfect. Whether you’re managing debt, building credit, or saving for a down payment, our certified Credit Counsellors can create a personalized plan to get you on track. Free resources like our Keys to Home Confidence program can also help by providing practical guidance and tools to make managing housing costs less stressful. 

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Common Roadblocks and How to Overcome Them

Low Credit Score 

Lenders are cautious about low credit scores because they suggest past difficulties managing debt. If you need to improve your score, focus on making all your payments on time and reducing your credit card balances.

As a general rule, a credit score of 680 or higher may help you qualify with a prime or “A” lender, which can offer better mortgage rates. Scores between 600 and 679 may still qualify with an A lender, depending on your overall financial profile, but may also lead you toward a B lender. Scores below 600 can make it more difficult to qualify with traditional lenders.

These are general benchmarks, not hard cutoffs. Lenders consider your full financial picture, including your income, debts, credit history, down payment, and debt-service ratios. They may also use different credit-scoring models.

High Debt Levels 

A high debt-to-income ratio can make it harder to qualify for a mortgage because more of your income is already going toward debt payments. If you’re hoping to buy a home but carrying significant debt, consider speaking with a certified Credit Counsellor at a non-profit credit counselling agency about ways to reduce your debt and strengthen your overall financial picture.

A Credit Counsellor can help you understand your options and how each could affect your goal of getting a mortgage. Depending on your situation, this could include debt consolidation, financial coaching, or other strategies to manage your debt and improve your finances. They can also help you understand the potential impact of each option on your credit and mortgage plans, so you can make an informed decision based on your timeline and goals.

Limited or Irregular Income 

Stable income is important for lenders as it shows you can consistently make mortgage payments. If your income is irregular or seasonal, your mortgage application may face challenges. Using a co-signer with a steady income, looking for a smaller property, or applying for first-time homebuyer programs can help improve your chances.

For self-employed, seasonal, or commission-based workers, lenders typically review income from the past two years. They may ask for Notices of Assessment (NOAs) and T1 General tax returns, and, depending on the lender and your situation, may use an average of your income over those two years.

Insufficient Down Payment 

If you don’t have enough saved for the minimum down payment, you may need more time to build your savings before applying for a mortgage. Creating a budget, automating transfers to a dedicated savings account, and tracking your progress can help you get there.

If you’re a first-time homebuyer, you may also be able to use savings from a First Home Savings Account (FHSA) or withdraw eligible funds from your RRSP through the Home Buyers’ Plan (HBP). Some buyers also receive a down payment as a gift from an immediate family member. If you’re receiving a gift or using funds from an FHSA or RRSP, make sure you understand the applicable rules and keep documentation showing where your down payment came from, as your lender will typically need to verify the source of the funds.

Previous Mortgage Denials 

Getting denied for a mortgage can be discouraging, but understanding why you were turned down can help you determine your next steps. Ask the lender for the reason and review your credit report, income, and debt information to identify any issues that may have affected your application.

If you’re considering applying again, an independent mortgage broker can help you understand your options. Unlike a bank mortgage specialist, a broker can work with multiple lenders, including alternative lenders that may have more flexible qualification criteria for borrowers with non-standard financial situations. A Credit Counsellor can also help you review your debt and finances and explore ways to strengthen your financial position before you reapply.

Your Next Steps Toward Mortgage Approval 

Getting approved for a mortgage may feel challenging, but with the right preparation and support, it’s within reach. Taking proactive steps like improving your credit, managing debt, and saving for a down payment can make a big difference.

Ready to feel more confident about the real cost of homeownership? Explore Credit Canada’s Keys to Home Confidence program for practical tools, guidance, and resources to help you understand your housing costs, plan ahead, and make informed decisions about your homeownership goals.

Not sure if you’ll qualify for a mortgage? Credit Canada’s certified Credit Counsellors offer confidential, judgment-free advice to help you understand your options and create a plan that fits your goals. This includes providing budgeting support to improve your financial situation and assist with saving. Contact us today by calling 1 (800) 267-2272 or chat with our AI-powered debt management agent, Mariposa.