Dwayne Kavanagh
Mortgage Agent Level 2 - M22004377
Tel: 416-937-5991 | Cell: 416-937-5991 | Fax: 905-574-7384
If you’re thinking about buying a home, one of the first steps is understanding what you need to qualify for a mortgage. Lenders look at a few key factors to determine if you’re eligible, how much you can borrow, and what interest rate you’ll receive. Here’s a simple breakdown to guide you through the process.
Lenders need to ensure you can afford your mortgage payments, so they look closely at your income and job stability.
Proof of Income: You’ll need to provide pay stubs, a letter of employment, and recent tax documents (like T4s or NOAs if you’re in Canada).
Stable Employment: Ideally, you’ve been with the same employer for at least two years. If you’re self-employed, expect to provide two years of income tax returns and financial statements.
Debt-to-Income Ratios: Lenders calculate two important ratios: Gross Debt Service (GDS) and Total Debt Service (TDS). GDS focuses on your housing costs relative to your gross income, while TDS includes all your debts (like credit cards, car loans, etc.). In Canada, lenders generally prefer a GDS below 39% and a TDS below 44%.
Your credit score plays a major role in qualifying for a mortgage.
What is a Good Credit Score?: In Canada, a credit score of 680 or higher is ideal for most mortgage products. Lower scores can still qualify, but your options may be limited.
Why It Matters: A good score shows lenders you’re reliable at paying debts, which can help secure a lower interest rate. Poor credit may mean you’ll need a larger down payment or consider alternative lenders.
How to Improve It: Pay bills on time, keep credit card balances low, and avoid applying for too much new credit at once.
The amount of money you put down upfront is crucial.
Minimum Down Payment: In Canada, the minimum down payment depends on the home price:
5% for homes up to $500,000
10% for the portion of the price between $500,000 and $1 million
20% for homes over $1 million
Mortgage Insurance: If your down payment is less than 20%, you’ll need mortgage default insurance (e.g., from CMHC). This protects the lender in case you default but adds to your monthly costs.
Lenders want to see that you have enough savings not only for the down payment but also for additional costs, such as:
Closing costs (typically 1.5% to 4% of the purchase price)
Moving expenses
Emergency funds for unexpected repairs or financial changes
Showing a healthy savings account reassures lenders that you’re prepared for homeownership.
Lenders assess your current financial obligations to ensure you can handle a mortgage.
If you have large debts (like student loans or credit card balances), they can impact your TDS ratio.
Paying down high-interest debts before applying for a mortgage can improve your approval chances and borrowing power.
The home you plan to purchase also influences your mortgage approval.
Appraisal: Lenders may request a home appraisal to confirm the property’s value aligns with the loan amount.
Condition: If a home needs major repairs, some lenders may hesitate to approve the mortgage until the issues are addressed.
To streamline the process, have these documents ready:
Government-issued ID
Proof of income (pay stubs, NOAs, employment letters)
Bank statements (to verify your down payment and savings)
Credit report (the lender will typically pull this, but it’s good to review it first)
List of debts and monthly expenses
Qualifying for a mortgage comes down to your income, credit score, savings, and current debts. By understanding these factors and preparing in advance, you can improve your chances of securing the home of your dreams. If you’re unsure where you stand, reaching out to a mortgage agent can provide clarity and help you develop a plan to get mortgage-ready.
Whether you’re a first-time buyer or looking to upgrade, the process doesn’t have to feel overwhelming. Take it step by step, and soon enough, you’ll have the keys to your new home in hand.