What Lenders Look for When You Apply for a Mortgage
When you apply for a mortgage, lenders aren’t just checking one thing. They’re looking at the full picture to make sure you’ll be able to handle the payments comfortably — and that the loan makes sense for them too.
Here’s a breakdown of the five main things lenders focus on when reviewing a mortgage application.
1. Income
First and foremost, lenders want to know you have the ability to make your mortgage payments. They’re looking for consistent, predictable income that’s likely to continue.
If you’re a salaried employee, it’s usually straightforward:
If you’re self-employed, on commission, or have variable income, there’s a little more to it. We’ll need to dig into Notice of Assessments, T1 generals, or business financials to figure out what income we can use.
If you're unsure what documents you'll need, [click here to start a quick pre-approval] and I’ll guide you through it.
2. Credit
Your credit score matters, but lenders look at more than just the number. They’re reviewing your entire credit history to get a sense of how you manage debt.
Your credit report tells a story about you as a borrower. Good habits like paying on time and keeping balances low go a long way toward getting the best mortgage rates and options.
Some general credit score rules:
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600+ is needed for an insured purchase (less than 20% down).
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680+ is typically needed for a refinance.
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650+ if you're using a borrowed down payment.
If you're thinking about applying soon, it’s a good idea to check your credit ahead of time.
[If your credit isn't quite there, click here to see your options]
3. Down Payment
Your down payment is a key part of your mortgage application. Lenders need to see a 90-day history of where the funds came from to meet anti-money laundering rules.
If you’re planning to buy, try not to move money around too much before applying. It’ll make tracking and verifying everything much easier.
Quick down payment guidelines:
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If you’re planning to live in the home, you can buy with as little as 5% down (depending on the price).
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If you’re buying a property strictly as a rental, you’ll need at least 20% down.
4. Property
The property you’re buying matters too. It’s the security for the mortgage loan. If something goes wrong, the lender needs to know the property is in good condition and marketable.
An appraisal might be required to confirm the property’s value.
5. Debts
Lenders also review your existing debts to make sure you’re not overextended. They use debt-to-income ratios to measure this:
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39% maximum for housing costs (mortgage, property taxes, heat, and half of condo fees).
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44% maximum for total debts (housing costs plus credit cards, loans, and other payments).
Other debts that factor in:
Managing your debts well can make a big difference when it comes to mortgage approval.
Final Thoughts
Understanding what lenders look for can make your mortgage approval smoother and less stressful. A little preparation goes a long way toward getting the best rates and terms.
[Ready to find out where you stand? Click here to get pre-approved in just a few minutes.]
Frequently Asked Questions (FAQ)
What is the minimum credit score to get a mortgage in Canada?
Most lenders require a minimum credit score of 600 for an insured mortgage. For refinances, a score of 680 or higher is usually needed.
Can I use gifted money for my down payment?
Yes, as long as it comes from an immediate family member and you provide a signed gift letter.
How much debt is too much when applying for a mortgage?
To qualify for the best mortgage rates, your total debt payments (including housing costs) should stay below 44% of your income.