Canadian mortgage lenders assess a variety of criteria when considering mortgage applications. Taking steps to ensure that you meet these criteria before you meet with a lender can improve your chances of qualifying for a mortgage in Canada.
Save enough money for a down payment. A minimum down payment of 20 percent of the mortgage value is typically required for conventional mortgages in Canada. However, with mortgage loan insurance to cover potential default of payment, you may be able to qualify for a mortgage with a down payment of as little as 5 percent if you’re a permanent resident, or 10 percent if you’re a non-permanent resident. In Canada, any mortgage with a down payment of less than 20 percent is considered a high-ratio mortgage, which means the loan is worth more than 80 percent of the lending value of the property. These mortgages are generally required to be insured to protect against payment default. Keep in mind that the loan insurance necessary for these high-ratio mortgages increases the carrying cost of the mortgage.
Ensure you have sufficient monthly income for regular interest payments. Add up all your monthly expenses and debt payments and subtract them from your income to determine whether a mortgage payment will fit into your budget. To meet the standards of Canadian lenders, your monthly housing costs should be less than 32 percent of your gross household monthly income, according to the Canada Mortgage and Housing Corporation, Canada’s national housing agency. Housing costs include monthly mortgage principal and interest payments, taxes and heating expenses.
Pay off other loans. If you already have a heavy debt load, you may have trouble qualifying for a mortgage in Canada. To meet Canadian lenders’ standards, your entire monthly debt load should be less than 40 percent of your gross household monthly income, according to the Canada Mortgage and Housing Corporation. This includes mortgages as well car loans, credit card purchases and other debts.
Build a strong credit history. Before approving you for a mortgage, lenders will look at your credit history to determine how well you’ve paid your debts and bills in the past. If you have no credit history, or a credit history that is not accessible to Canadian lenders, start building one. Apply for a credit card in Canada and regularly pay the bills on time. If you have bad credit, you may not qualify for a mortgage in Canada until you reestablish a good credit history by making debt payments regularly and on time. However, you may be able to qualify for a mortgage despite your poor credit history if you have a relative who is willing to be a guarantor or cosigner on the loan. This person must meet the lender’s borrowing criteria, including good credit history, and is legally obligated to make the mortgage payments if you do not.
Compile all of the necessary documentation. Some of the things you will need to bring when meeting with a Canadian lender include identification such as your driver’s license; details about your employment, including confirmation of salary in the form of a letter from your employer; information and details on all bank accounts, loans and other debts; proof of financial assets; and proof of source of funds for the down payment.
Megan Harman is based in Toronto, Ontario, and has been writing professionally since 2002. Her work has been published in "Canadian Business Magazine," the "National Post," the "Globe and Mail," "Investment Executive Newspaper" and "Journey Magazine." She has completed the Canadian Securities Course and holds a Bachelor of Journalism with a minor in economics from Carleton University.