You have found the perfect home. Now you need the mortgage to buy it. But what exactly do lenders look for when they review your application? Understanding this helps you prepare — and avoid surprises.
The Five Pillars of Mortgage Approval
Every lender evaluates your application against these five criteria. Think of them as a checklist the lender works through.
1. Credit Score
Your credit score is a three-digit number (300-900) that represents your borrowing history. Lenders use it to assess risk.
| Score Range | Typical Outcome | |---|---| | 680+ | A-lender approval (best rates) | | 620-679 | Approval possible, may need conditions | | 580-619 | Alternative lender territory | | Below 580 | Difficult, may need co-signer or private lender |
What helps your score: Paying bills on time, keeping credit utilization below 30%, having a long credit history.
What hurts your score: Late payments, maxed-out credit cards, too many recent credit applications, collections.
2. Income and Employment
Lenders need to confirm you can afford the mortgage payments. They look at:
- Employment type: Full-time salaried is simplest. Self-employed, commission, and contract workers need additional documentation.
- Job stability: How long have you been with your employer? Two years in the same field is the general benchmark.
- Income verification: Recent pay stubs, T4s, Notice of Assessment, and sometimes a letter from your employer.
Self-employed? You typically need two years of tax returns (T1 Generals with Statement of Business Activities). Some lenders have programs for business-for-self with as little as one year of income history.
3. Debt Service Ratios (GDS and TDS)
These are the most important numbers in your application. Lenders calculate:
GDS (Gross Debt Service) = Housing costs ÷ Gross monthly income
Target: ≤ 39%
Housing costs include: mortgage payment + property taxes + heating + 50% of condo fees (if applicable).
TDS (Total Debt Service) = (Housing costs + all other debts) ÷ Gross monthly income
Target: ≤ 44%
Other debts include: car payments, student loans, credit card minimums, lines of credit.
Use our mortgage calculator to check your GDS and TDS ratios.
4. Down Payment and Source
Lenders verify both the amount and the source of your down payment:
- Savings: Bank statements showing 90 days of accumulation.
- Gift from family: A signed gift letter confirming no repayment is expected.
- RRSP (Home Buyers' Plan): Proof of RRSP balance and withdrawal.
- FHSA: Account statements.
- Sale of existing property: Agreement of purchase and sale.
Down payment must come from an acceptable source. Large, unexplained deposits raise questions.
5. The Property Itself
The lender is not just lending to you — they are lending against the property. They assess:
- Property type: Detached homes are simplest. Condos, rental properties, and rural properties have additional criteria.
- Appraisal value: The lender may order an appraisal to confirm the purchase price is reasonable.
- Location: Urban properties are generally lower risk than rural.
- Condition: Major structural issues or environmental concerns can affect approval.
The Stress Test
Since 2018, all Canadian mortgage applicants must pass a "stress test." This means you must qualify at the higher of:
- Your actual contracted rate + 2%, or
- The Bank of Canada's qualifying rate (currently around 5.25%)
This ensures you could still afford payments if rates increase. It reduces the maximum you can borrow by roughly 20% compared to qualifying at the actual rate.
Documents You Will Need
Prepare these before applying to speed up the process:
- Two pieces of government-issued ID
- Most recent pay stub
- Letter of employment (confirming position, salary, start date)
- T4 slips (last 2 years)
- Notice of Assessment (last 2 years)
- Bank statements (90 days, showing down payment)
- List of assets and liabilities
How a Broker Helps
Every lender weighs these criteria slightly differently. Some are more flexible on credit score but strict on income. Others love self-employed borrowers but require larger down payments. A mortgage broker knows which lenders match your specific profile — saving you time and improving your chances of approval.
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