June 2, 2025
Employment history and income stability – Canadian lenders look for at least two years of consistent income, but this doesn’t mean you must be with the same employer or in the same industry. What matters most is that your income is steady and well-documented. If you’ve recently changed jobs and are not on probation, that’s usually acceptable—especially if your income type and hours are similar. Salaried and hourly workers will typically need a job letter and recent pay stubs. Self-employed borrowers must provide two full years of tax returns, Notices of Assessment, and supporting financial documents.
Credit history and score – Lenders check your credit through Equifax or TransUnion Canada. Credit scores range from 300 to 900. A score above 680 is ideal for access to the best rates and easiest approval. However, mortgage insurers like CMHC, Sagen, and Canada Guaranty may accept scores as low as 600 for insured mortgages. Lenders review more than just the number—they assess your payment history, credit utilization (ideally below 30%), account age, inquiries, and any negative marks like collections or bankruptcies.
Debt ratios and affordability – Two key ratios guide mortgage approvals in Canada: Gross Debt Service (GDS) and Total Debt Service (TDS). GDS includes housing costs (mortgage, property taxes, heating, and 50% of condo fees) and should typically be under 39% of your gross income. TDS includes all debt obligations and should not exceed 44%. Staying below these thresholds increases your chances of approval, while going over them may still be allowed if you have strong compensating factors like a high credit score or large down payment.
Down payment and savings – In Canada, the minimum down payment is 5% for homes up to $500,000. For homes priced between $500,000 and $999,999, you must put down 5% on the first $500,000 and 10% on the portion above that. Homes priced at $1 million or more are not eligible for mortgage default insurance and require a minimum 20% down payment. In addition to the down payment, lenders expect you to show funds for closing costs—typically 1.5% to 4% of the purchase price. Some lenders may also require proof of additional savings, called 'reserves', equal to a few months of mortgage payments, especially for higher-risk applications or rental properties.
Appraisal and property value – The property you’re buying must support the amount you’re borrowing. Most lenders require a third-party appraisal to confirm the market value of the home. If the appraisal comes in lower than the purchase price, you may need to increase your down payment to cover the shortfall. Appraisals are also used to verify the condition and marketability of the property—especially important for rural or unique properties.
Documentation and underwriting review – Your application goes through a thorough underwriting process where the lender verifies your income, credit, assets, and liabilities. Standard documents include government-issued ID, job letters, pay stubs, T4s or NOAs, and bank statements. Lenders may also look for large or unusual deposits, NSF activity, or frequent credit inquiries. Self-employed borrowers need to provide business financials, tax documents, and proof that their income is stable and ongoing.
How to improve your chances of approval – To present a strong mortgage application, keep your credit score above 680 if possible, pay down existing debt to lower your TDS, and avoid new credit applications during the approval process. Maintain a steady job or income stream and document everything clearly. Save more than the minimum down payment and leave the funds untouched in your account for at least 90 days. Working with a mortgage broker can help you identify the best lender for your profile and guide you through any exceptions or challenges.
Understanding what lenders look for allows you to prepare smarter and avoid surprises. Income consistency, manageable debt levels, good credit, and a well-documented file are key to improving your chances of mortgage approval in Canada.
Source: Absolute Mortgage Team