Understanding your finances before applying for a mortgage

Getting a clear picture of your finances before you apply for a mortgage saves time, reduces stress, and improves your chances of approval. Here's what to review and prepare.

Your Credit Score

Lenders use your credit score to assess how reliably you've managed debt in the past. In Canada, credit scores range from 300 to 900. Most lenders require a minimum score of 600 to 680 for mortgage approval, though a higher score gives you access to better rates.

Check your credit report before applying. You can request a free copy from Equifax and TransUnion. Review it for errors and address any outstanding issues before you apply.

Your Income and Employment History

Lenders want to see stable, verifiable income. Salaried employees typically need to provide recent pay stubs and a letter of employment. Self-employed applicants generally need two years of tax returns and financial statements. Lenders will also look at the length and consistency of your employment history.

Your Debt Load

Lenders calculate two key ratios to assess affordability:

Gross Debt Service (GDS) ratio: The percentage of your gross monthly income that goes toward housing costs including mortgage payments, property taxes, heat, and half of any condo fees. Most lenders want this below 32%.

Total Debt Service (TDS) ratio: The percentage of your gross monthly income that goes toward all debt obligations including housing costs, car loans, credit card payments, and other debts. Most lenders want this below 44%.

Paying down existing debt before applying improves both ratios and strengthens your application.

Your Down Payment

The minimum down payment in Canada depends on the purchase price:

• Homes under $500,000: minimum 5%
• Homes between $500,000 and $999,999: 5% on the first $500,000 and 10% on the remainder
• Homes $1 million and over: minimum 20%

Your down payment source also matters. Lenders want to see that it has been in your account for at least 90 days or can be traced to a legitimate source such as savings, a gift from a family member, or proceeds from a sale.

Your Overall Financial Picture

Before applying, review your monthly budget, savings, and any upcoming major expenses. Buying a home comes with costs beyond the down payment, including legal fees, home inspection costs, land transfer tax, and moving expenses. Having a clear picture of your full financial situation helps you borrow confidently within your means.