How to Get Approved for a Mortgage in Canada

WOWA® Simply Know Your Options

There are three criteria lenders look at when approving your application:

• Income,
• Credit Score,
• Down Payment Percentage, and
• Property (collateral)

If you're unsure where you stand in any of these categories, it's good to get a pre-approval from a lender before starting the application process. Pre-approval has the added benefit of being able to lock in your mortgage rate and be immune to potential rises in mortgage rates over the lock (hold) period. That way, you can identify and fix any issues that may be holding you back. This article will dive into each of the criteria to help you understand how to get approved for a mortgage in Canada. It will discuss the different types of lenders and the process of receiving a mortgage.

The biggest hurdle to getting approved for a mortgage is income for most people. Lenders want to see that you will be able to have stable and adequate income to make monthly mortgage payments consistently. Lenders look at a few documents to qualify you for a mortgage to determine this.

The first thing lenders will look at is your source of income. Salaried or hourly employees will typically need to provide:

• A letter of employment dated within 30 days
• 2–3 consecutive recent pay stubs
• T4 slips and CRA Notices of Assessment for the past 2 years

If you're self-employed or a business owner, you'll still be able to receive a self-employed mortgage. However, lenders will typically require:

• T1 General tax forms for the past 2–3 years
• Notices of Assessment for the past 2–3 years
• Business documentation and 6–12 months of bank statements

Lenders see self-employed applicants as riskier than employees and may charge a slightly higher interest rate. If you receive alternative income — such as rental income, spousal support, or government benefits — you'll also need supporting documentation like active lease agreements, support agreement copies, or benefit letters.

Next, lenders want to see what percentage of your income goes towards home-related and additional debt payments. They calculate this using the gross and total debt service ratios.

Gross debt service (GDS) only focuses on predictable home-related expenses from your future home. This includes things such as mortgage payments, property taxes, and utilities. Mortgage professionals commonly abbreviate this to PITH, which stands for

Lenders want to ensure that no more than 39% of your income is spent on PITH. Although, a lower ratio will increase your chances of getting a mortgage. If GDS prevents you from qualifying for a mortgage, there are two general solutions, increase your income or reduce your PITH. A quick way to increase your income is by combining through a joint mortgage. You can decrease your PITH by looking for a cheaper home, increasing your down payment, getting a better mortgage interest rate, or home shopping in areas with lower property taxes.

The other ratio lenders calculate is the total debt service ratio (TDS). This shows the percentage of your income going towards your future PITH and additional debt payments not related to your property. For example, it includes student debt payments, auto loans, or credit cards. As you could imagine, TDS has a higher limit than GDS to make up for the additional inclusions. According to CMHC mortgage rules, your total debt service ratio can't exceed 44% for insurable mortgages. For uninsurable mortgages — those over $1.5 million, refinances, or with 30-year amortizations — some lenders have flexibility to extend ratios to 45–50%.

If your TDS is preventing you from qualifying for a mortgage, you can use the same strategies as GDS and more. The best approach is to either pay off high-interest debt or consolidate it into a low-interest loan. This will allow you to reduce monthly debt payments through a lower interest rate. Although, it's wise to talk with a mortgage broker or financial advisor before pursuing this strategy.

The mortgage stress test was introduced in January 2018 to ensure borrowers could still afford their mortgages if interest rates increased. Stress testing hypothetically increases your mortgage interest rate to see if you can still meet GDS and TDS limits. A higher interest rate will increase your monthly mortgage payments, resulting in a higher percentage of your income going towards PITH.

You must prove you can afford the higher of two rates: your contract rate plus 2%, or the OSFI floor rate of 5.25%. A higher qualifying rate increases your calculated monthly payment, which raises your GDS and TDS ratios. If the stress test prevents you from qualifying, you'll need to lower your purchase budget, reduce non-mortgage debts, or increase your down payment.

Stress test exemptions: You are exempt if you are renewing with your current lender without changing the loan amount, or doing a “straight switch” transfer at renewal without changing the balance or amortization.

Lenders also consider your credit score when evaluating your application. A high credit score indicates to lenders that you're a low-risk borrower likely to make mortgage payments on time. The higher your score, the more chance you get approved for a mortgage, and the lower your interest rate will be.

A recent Equifax report showed that the average Canadian has a credit score of 753. However, a credit score can range from 300 to 900. Anything below 600 is not considered creditworthy, while anything above 760 is excellent. If your credit score is on the lower end, there are still ways to get a mortgage through a private mortgage lender. However, it’s best to increase your score to avoid paying a high interest rate.

Some methods include paying your bills on time, maintaining a low credit utilization ratio, and diversifying your credit mix. You can also become an authorized user on someone else's credit card or take out a small loan and repay it on time. These methods won't work overnight, but they'll slowly help improve your score over time.

The third factor lenders consider is your down payment amount. A down payment is the portion of the home's purchase price that you're responsible for paying upfront. The larger your down payment, the smaller your mortgage will be, and the less you'll need to finance. Larger down payments will reduce your monthly mortgage payment, which will even help you meet debt service ratios. Larger down payments will also decrease the amount of interest paid throughout your mortgage. However, the type of property you want to buy has the most significant impact on your minimum down payment.

The minimum down payment for a primary residence depends on the purchase price:

• Up to $500,000: minimum 5% down
• $500,001–$1.5 million: 5% on the first $500,000, then 10% on the remainder
• Over $1.5 million: minimum 20% down

Any down payment below 20% requires Mortgage Default Insurance (CMHC), which protects the lender if you default on your payments. This premium is typically rolled into your monthly mortgage payments.

If you're having difficulty saving a down payment, there are several tools available:

• First Home Savings Account (FHSA): Save up to $8,000 annually, capped at $40,000 lifetime — contributions are tax-deductible and withdrawals for a qualifying home are tax-free.
• Home Buyers' Plan (HBP): Withdraw up to $60,000 tax-free from your RRSP, repaid over 15 years.
• Provincial and Municipal Programs: Vary by location and may offer grants or forgivable loans.
• First-Time Home Buyers' GST Rebate: Recover 100% of the federal GST — up to $50,000 — on a newly built or substantially renovated home priced up to $1 million, phasing out to zero at $1.5 million. Available for first-time buyers whose purchase agreement is signed on or after March 20, 2025 (and before 2031). This is a top-up to, and can be claimed alongside, the existing GST/HST New Housing Rebate.
• GST/HST New Housing Rebate: A separate, long-standing rebate that returns part of the federal GST (and, in some provinces like Ontario, part of the provincial HST) on a new or substantially renovated home. First-time buyers can stack it with the rebate above.

Note: The federal shared-equity First-Time Home Buyer Incentive was discontinued in 2024.

The government considers a secondary residence a property that won't be your primary living place. This can include vacation homes and other non-investment properties. The down payment for your secondary residence can also be as low as 5% to get a mortgage. While you won't be eligible for DPAPs, you can use your primary home to fund the down payment of your second home. For example, you can cash out refinance your primary residence and use the proceeds for your secondary home down payment. However, you'll need to ensure you remain within debt service ratio requirements.

Non-owner-occupied rental properties require a minimum 20% down payment for an investment property mortgage. However, if you purchase a multi-unit property and live in one of the units, it qualifies as a primary residence with lower down payment requirements:

• 1–2 units: standard tiered down payment (5–10%)
• 3–4 units: flat 10% minimum down payment

Lenders will often allow up to 50% of projected rental income from the other units to offset your housing costs, which can significantly improve your qualification odds. This strategy is sometimes called “house hacking.”

If you want to get a commercial mortgage, you'll need a down payment larger than 25%. It's similar to an investment property mortgage but is for buildings containing more than four units or non-residential property. The interest rates for commercial mortgages also tend to be higher than investment property mortgages. Additionally, there are net worth requirements.

Buying raw land is the riskiest real estate investment. It is difficult to sell, meaning it's more dangerous to lenders. As a result, you'll likely need a minimum down payment of 30%. Land acquisition loans also have the highest interest rate out of the four types of properties mentioned in this section.

Beyond your personal finances, lenders also assess the property itself as collateral. A property that's difficult to resell increases the lender's risk and can result in a declined application or higher rates.

Lenders base the mortgage on the appraised value, not the purchase price. If the bank's independent appraiser values the home at $750,000 but you agreed to pay $800,000, you must cover the $50,000 difference from your own funds — it cannot be borrowed.

Banks favor standard residential properties. They often decline or apply higher requirements to:

• Micro-condos under 450–500 sq ft
• Fixer-uppers lacking essential systems (heat, plumbing, electrical)
• Properties with a history as a grow-op
• Properties with unclear zoning or mixed-use issues

For condominiums, lenders review the status certificate to assess the health of the condo corporation. If the building is poorly managed, facing active lawsuits, or has an underfunded reserve fund, lenders will typically decline the application.

Properties with wells, septic systems, or hobby farm components require specialized underwriting. Lenders may require a larger down payment, a well water test, or a septic inspection before approving the mortgage.

Canadian mortgage lenders are commonly grouped into three tiers — A-lenders, B-lenders, and C-lenders — based on their interest rates and how flexible they are on qualification. It's worth knowing that these letters describe the lending tier, not who regulates the lender: federally regulated lenders (overseen by OSFI) exist in both the A and B tiers, while credit unions are provincially regulated and sit in the prime (A) tier alongside the big banks. Read on to understand each option and how to get approved.

A-lenders are prime lenders offering the lowest rates to well-qualified borrowers. This tier includes the big six banks (such as Scotiabank andRBC) as well as credit unions. Because they're the safest lenders, they also have the most stringent requirements: you'll typically need a credit score of 680 or higher and proof of steady, verifiable income.

There is one meaningful distinction within this tier. Banks are federally regulated and must apply the mortgage stress test. Credit unions are provincially regulated, so they are not required to apply the federal stress test — though many choose to apply it, or a version of it, anyway. That gives credit unions some room to be flexible at the margins, and they often provide competitive rates and strong customer service because they operate on a member-owned, not-for-profit basis. The trade-off is a narrower product lineup than the big banks and availability that varies by province.

B-lenders are alternative or near-prime lenders — for example, monoline lenders, Equitable Bank, and Home Trust. Note that some of these are still federally regulated institutions; what makes them “B” is their lending focus, not a lack of oversight. They offer more flexible qualifications than A-lenders, which makes them a good fit for self-employed borrowers, newcomers, or those with bruised credit who don't quite meet bank criteria. You'll generally need a credit score of around 600 or higher, and the overall cost is higher than prime — both in rate and in lender or broker fees — to offset the added risk.

C-lenders are private mortgage lenders and mortgage investment corporations (MICs). They're the most flexible option and can approve borrowers who don't qualify with an A or B lender, often with a credit score of around 550 or higher. A private mortgage is usually best used as a short-term bridge — to secure a home now, then refinance to a lower-rate A or B lender once your situation improves. In exchange, they charge the highest rates and often significant lender and broker fees.

The previous two sections explained the criteria lenders look at and different lending options. You should now understand your limiting factors and which type of lender has the highest chance of approving you. Review the primary section explaining tactics to meet income, credit score, and down payment requirements, if you don't meet lending criteria. The next step is to get mortgage funding, which can be done in three steps.

The first step is to apply for a mortgage online or have an initial conversation with a mortgage broker. They will ask you basic questions about your income and job. Additionally, you will better understand their interest rates and mortgage lending options.

If you are happy with the lending rates offered through your discovery call, you can advance to a pre-approval. This is a detailed document and credit score review but is not a guaranteed mortgage. Most real estate agents want to see you have been pre-approved for a mortgage before working with you. While you can receive numerous pre-approvals, each different application will negatively impact your credit score.

The last step is to receive mortgage funding. This only happens once you have an accepted offer on a home. Your lender will complete a final review of your financial situation and eligibility. If approved, they will fund your mortgage, and you'll be able to move into your new home!

Applying and getting approved for a mortgage in Canada is a process. Ensuring you get approved begins with understanding that lenders assess you through your income, credit score, down payment, and collateral. From there, it's essential to understand what is getting in your way and make a plan to fix it. There are many different types of mortgage lenders that may approve you. You may also want to simplify your finances by keeping everything in one place. In this scenario, you’d want to consider the best banks in Canada. Overall, have a realistic expectation of what you can afford and be patient as you work through the application process.