Preparing to get a mortgage

Before you start shopping for a mortgage, assess your financial situation. There are actions you can take to make sure you’re financially ready to buy a home. 

Checking your credit report

A potential lender will look at your credit report before approving you for a mortgage. Before you start shopping around for a mortgage, order a copy of your credit report. Make sure it doesn’t contain any errors.

If you don’t have a good credit score, the mortgage lender may:

Learn how to order your credit report.

Staying within your budget

To qualify for a mortgage, you have to prove to your lender that you can afford the amount you’re asking for.

Mortgage lenders and mortgage brokers use your financial information to calculate your monthly housing costs and total debt load. They use this information to determine what you can afford.

Lenders and brokers consider information such as:

Total monthly housing costs

Your total monthly housing costs should not be more than 35% of your gross household income. This percentage is also known as the gross debt service (GDS) ratio. You may still qualify for a mortgage even if your GDS ratio is slightly higher. A higher GDS ratio means you’re increasing the risk of taking on more debt than you can afford.

Your monthly housing costs include:

Total debt load

Your total debt load should not be more than 42% of your gross income. This includes your total monthly housing costs plus all of your other debts. This percentage is also known as the total debt service (TDS) ratio.

You may still qualify for a mortgage even if your TDS ratio is slightly higher. A higher TDS ratio means you’re increasing the risk of taking on more debt than you can afford.

Other debts may include your monthly payments for your:

How the stress test can impact your qualification

Federally regulated entities, like banks require that you pass a stress test to get a mortgage. This means that you need to prove you can afford payments at a qualifying interest rate. This rate is typically higher than the actual rate in your mortgage contract.

Credit unions and other lenders that aren’t federally regulated may also ask you to pass the mortgage stress test.

The qualifying rate your lender uses for the stress test depends on whether or not you need mortgage loan insurance.

If you need mortgage loan insurance, the lender must use the higher interest rate of either:

If you don’t need mortgage loan insurance, the lender must use the higher interest rate of either:

For example, say you apply for a mortgage at a bank and you have a down payment of 5% of the value of the home.

Assume that:

You need to get mortgage loan insurance since your down payment is less than 20%. In this example, you need to qualify at the Bank of Canada’s conventional 5-year mortgage rate of 5.14%.

Use the Mortgage Qualifier Tool​ to see if you can qualify for a mortgage.

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