Securing mortgage financing can be a complicated process with many moving parts. At the outset, it is important to know that:
This is an extensive topic and the answer to the question "can I get a mortgage?" depends on a number of interrelated variables. Sometimes there are different ways to achieve your property ownership goals than you initially thought. To properly answer the question you will need to discuss the specifics of your situation and objectives with a licensed mortgage professional. The goal of this page is to equip you with the knowledge to feel confident enough to have that initial discussion.
Use the anchor links bellow to navigate the various sections of this page and you can always click the "Table of Contents" links at the bottom right of each section to return here. There are buttons that will open more extensive resources for each section. Feel free to use the chat box on the right hand side if you have questions at any point or call us when you feel ready.
A mortgage is a contract is a loan between you and a lender to finance a property. As it relates to mortgages, there are rule books largely prescribed by the Canadian Government that the majority of banks and mortgage lenders must follow. Since the 07/08 financial crisis the government has imposed stricter mortgage lending conditions to better manage risk and avoid irresponsible lending behavior.
In order to assess the risk that you represent as a borrower and decide whether they will lend you any money, lenders are required to consider 3 indicators of your financial health. You can use the acronym I.C.E. (like the ice in your drink) to help remember the 3 requirements you need to prove to qualify for a mortgage:
Next is a summary of the 3 basic “I.C.E.” requirements for any mortgage approval. If you want to explore further or participate in the self-assessment, click the buttons at the end of each section. After reading this and the more-info links you should have a pretty good idea of whether you are ready to take the next steps of applying for a mortgage pre-approval.
"You have to prove that your income is reliable and sufficient enough to pay for your new mortgage as well as your existing debts."
First, you have to prove you reliably make money. That means steady and predictable income sufficient to cover all your payments, including loans, credit cards, credit lines, support, etc. and – of course – the new mortgage payment and property taxes. Generally the property you can afford will be between 4 and 5 times the value of your gross (pre-tax) annual household income and potentially much less if you have a lot of other debt.
There is a maximum ratio of monthly debts to monthly income permitted, so if you have a lot of debt and payments, given a fixed amount of income, then there might not be enough left over for the home you’d like to buy. As a rule of thumb, every $500 in monthly debt payments that you have reduces the amount of mortgage you can qualify by $100,000 (vehicle payments are the number one culprit).
There are various permissible income sources that you can use for mortgage qualification purposes, but they need to be properly documented and show a track record that indicates that they are not likely to disappear in the foreseeable future.
Click the button bellow to learn more about income and debt as they relate to mortgage qualification including: what are the permissible income sources for a mortgage, how debt and debt-service-ratios affect mortgage affordability, and a self assessment.
“Your credit history has to demonstrate that when someone lends you money or extends you credit, that you will likely pay them back as agreed”
Second, you need credit history on your credit report and the history needs to show – in the past 2 years at a minimum – that you have generally paid all your bills on time and that no one is chasing you to get paid.
FYI, whether you know it or not, most organizations that lend you money or extend you credit, report your repayment patterns monthly to Equifax and TransUnion, which then shows up on your credit report as a “credit score” (risk rating). It is recommended that you establish at least 2 lines of credit that will show up on your credit score and consistently pay your balances in full.
Mortgage lenders look at your past repayment track record as a reliable predictor of your future payment habits. You don't need perfect credit, but most lenders will generally want to see a credit score of at least 650.
The good news about credit is that it can be fixed with a little bit of discipline and time.
Click the button bellow to learn more about how credit affects mortgage qualification including: what is a credit report and what does it show, how to improve your credit score in order to get a mortgage, and a self assessment.
“You have to have some of your own money in the deal, and more is always better.”
Third, you’ve got to have “skin in the game,” which is the money you put into the purchase of your property. The rule book says your minimum equity / down payment needs to be 5% of the purchase price (OAC) if you are buying a house, so $15K for a $300K purchase as an example.
Additionally, you have to prove you have a further 1% set aside to cover the costs of a lawyer, property inspector, appraiser, taxes, etc., called “closing costs.”
The only way ZERO-down is an option is if you borrow the 5% separately from the mortgage, for example on a line-of-credit. This is only possible if you have an excellent income and credit profile.
There are various permissible sources of down payment, but like income they must be properly documented and legally obtained.
Down payment requirements for a mortgage depend on:
Click the button bellow to learn more about the equity and down payment requirements to buy a property in Canada including: the minimum down payment requirements for a mortgage, how property type affects the minimum down payment, acceptable down payment sources, and a self assessment.
“Every lender has specific rules as they relate to property type, location, attributes and intended use. What you can qualify for depends on the property in addition to your financial situation.
Each bank, trust company, mortgage investment corporation, credit union, or private lender has a list of property types, locations and uses that they will consider, and those that they won't. In some categories, such as existing single-family-homes in the city there will be intense competition and lender choice, which means better terms and conditions for you. In other categories, such as rural acreages, raw land, or new construction financing, there will be far fewer choices. If a property's intended use is for investment purposes (rental), the down payment requirement will be higher then if the property is to be owner-occupied, and so on.
To be considered as a target lender for you, there needs to be overlap between your financial situation and those for the property-type and/or use.
Further, lenders want to know exactly what you are buying, its physical condition, appraised value and location. Their concern is simply, if you do not or cannot repay your mortgage and they have to take it back (seize or foreclose on it), will they be able to sell it quickly and recover their money!
Click bellow to explore our full list of property type specific information pages
Finally, in addition to I.C.E. - your Income, Credit, and Equity - and the Property, lenders make a subjective evaluation of all other conditions that might add or subtract risk in giving you a loan. For example, frequently moving around or switching employers might indicate you can't hold a job or that your industry is in trouble, hence instability. Likewise, if there is some potential income instability (economic down turn for example) do you have other assets you could sell or savings to fall back on if you run into financial hard-times or has all the money been spent? Will you or would you bring in roommates to help pay the bills? Pending divorce or unpaid income or property taxes are other examples of conditions that lenders worry about. All-in-all, lenders are about lending money while managing risk of default - that's it in a nutshell. Your job and ours is to show that you are a good candidate for a mortgage!
The goal of this page was to break down the necessary components of a successful mortgage application into a framework for understanding your own situation and requirements, and to prepare you to provide context when you connect with a mortgage professional such as ourselves.
If you think you meet the necessary requirements as discussed above or are getting really close for a mortgage pre-approval, congratulations! Please click here to schedule a mortgage pre-approval call. We will reach out and happy to help confirm your eligibility in a call that typically takes about 10-15 minutes without you ever having to make a bank appointment. If it looks like you want to proceed with a pre-approval, we'll talk about the next steps.
Even if you have potential problems or not enough OKs, please feel free to contact us for advice to help get you on the right track. Any issues will need to be addressed before you are able to obtain a mortgage.
When we talk, some basic information is required to provide context to your situation and potential solutions, including:
You can set up the call, and answer some of the questions that lenders always ask here.
|“Did you know that 70% of mortgage consumers contact their personal bank to arrange their mortgage simply because they are unaware or unclear about what professional mortgage brokers are, what they do, and how they are paid? Click to learn the significant benefits of using a mortgage broker to help get mortgage approved or to help overcome problems along the way. Thanks for sticking with us. This website exists to win your trust and patronage!"|
As licensed professional mortgage brokers, we know exactly what it takes to qualify you for a mortgage and we do more than just get you a great mortgage at a great rate, we will show you the way, too.