How to Get a Mortgage in Canada Easily: The Ultimate Guide, 2023

Buying a home is one of the most significant investments you’ll ever make, which is why it’s important to get your mortgage right.

Therefore, it’s important to know what you’re getting into before signing up for one.

This blog post will give you all the information you need to start shopping around for the best rates and mortgages in Canada. Read on to learn about the steps of how to get a mortgage in Canada and decide if it is the right decision for you!

This blog post will also show you how to get a mortgage in Canada approved fast so that you can start living in your dream home. We’ll cover: what is a mortgage and why do we need it; different types of mortgages; and where to find one. Let’s get started!

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What is a Mortgage?

A mortgage is a form of loan that you can use to acquire a home. The collateral for the loan is the property. A mortgage is generally for a large amount and will take anywhere from 25 to 30 years to pay back.

When you take out a mortgage, you agree to make regular payments. Principal and interest are included in each mortgage payment. The principle is first paid down with the money before it is applied to the interest. If you don’t make your scheduled payments on time, the lender of your mortgage has the right to seize possession of the property. Now let’s look at how to get a mortgage in Canada.

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The Process of How to Get a Mortgage in Canada

Step 1: Make an Appointment with a Mortgage Professional

A mortgage professional knows how to get a mortgage in Canada so before you spend too much time and energy looking for a house, it’s a good idea to meet with one to assist you in obtaining a head start on financing your future property. A good mortgage professional will ask you a series of questions to understand your needs and goals.

Step 2:  Get Pre-Approved

A pre-approval means that you have been approved for a home loan amount at a specific interest rate, but it does not mean that you can automatically buy the property. You will still need to know how to qualify for a mortgage with the lender based on the income and credit history.  A pre-approval indicates that you are serious about purchasing a home to the sellers and realtors.

Step 3: Home Inspection

The next step on how to get a mortgage in Canada is a home inspection. Before you purchase any property, it’s a good idea to have a professional perform an inspection. This will let you know what condition the property is in and if major repairs need to be made before moving into the house.

Step 4: Make an Offer

Your real estate agent will assist you in making an offer when you find the house of your dreams. This will include your intended purchase price, the date you want to take possession, and any other conditions to the transaction.

Step 5: Get Your Mortgage Documents in Order

Before your offer is accepted, you will need to provide the lender with financial documents that prove that you can repay a loan. This may include pay stubs, tax returns, and investment statements. All of these documents must be certified by an income professional such as a revenue agent or accountant.

Step 6: Finalize Your Mortgage Information

When your offer is accepted, you’ll be able to work with your mortgage expert to finalize your mortgage rate and term (mortgage terms are usually five years, although they can range from 6 months to 10 years). At this stage, you’ll also choose your amortization period. The interest rate you’ll pay on your mortgage is your mortgage rate. The amortization period will determine how long it will take you to pay back your loan.

Step 7:  Put a Down Payment on the Property

To close your transaction, you will need to put a certain amount of money (usually 20%) down on the property. This is known as “funds required for transaction” and can include both your down payment and the money needed for any closing costs. If you don’t have enough money saved up, you’ll need to borrow the rest of it against your mortgage.

Step 8: Sign Your Mortgage Documents

Your documents will be signed once all conditions have been met. It’s essential that you read and understand everything before signing, including all terms and conditions attached to your loan contract. 

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What Does a Lender Look for When Approving Your Mortgage Application?

Now that you know the steps involved in how to get a mortgage in Canada, these are the factors that determine if your lender will approve your mortgage application.

Your Income

Your income is an essential aspect of how to get a mortgage in Canada approved. Lenders will consider not only your salary but any other income that you may have coming in. They want to see that you have a consistent source of revenue. To be acceptable to most lenders, you’ll need to demonstrate that your earnings are enough to make regular mortgage payments. 

Most lenders will consider you golden if you’re a full-time salaried employee. Lenders will also appreciate an hourly worker whose hours are guaranteed. 

If you’re a full-time or part-time hourly employee whose hours aren’t guaranteed, or if you’re working on a contract, you’ll generally need two years of earnings to be considered (lenders will use a two-year average). To verify your income, you will generally be required to submit a letter of employment, most recent paystub, T4s, and assessment notices for the past two years.

If you’re self-employed, lenders will generally want to see that you’ve been active in the business for at least two years. You’ll provide Notices of Assessment, Personal T1 Generals, and Corporate Financial Statements (if it applies) for the two most recent years.

The Financial Consumer Agency of Canada’s Mortgage Qualifier Tool helps you ascertain whether or not you qualify for a home mortgage based on your earnings and expenditures.

Your Down Payment

Your down payment also determines how to get a mortgage in Canada approved. The lenders will take your down payment into account when considering your application. The larger your down payment, the less of a loan you need and, therefore, the lower your monthly payment. 

The lender will generally want to see a 90-day transaction history if the down payment funds are sourced from a bank account. If the cash comes from investments or RRSPs, you’ll usually need to submit three monthly statements. 

You’ll usually be required to submit a copy of the signed purchase agreement and a recent mortgage statement if it’s from the sale of another property that has a mortgage.

Debts & Credit

Lenders will want to know about all your debts. If you have high debt, they may restrict the mortgage they are willing to give you or reject your application depending on how much debt you have. You’ll need to provide copies of statements for bank accounts, lines of credit, loans, and credit cards that you have.

Lenders will also check your credit score as part of the approval process to see how responsible you’ve been with debt in the past. If you have a good history of paying off debts, this is a good indicator that you’ll be able to make payments regularly on your mortgage as well. 

Assets

You’ll need to give the lender a rundown of your assets in terms of this mortgage. Chequing accounts, savings accounts, TFSAs, RRSPs, non-registered accounts, and cars are all examples of assets that you would list. Having many assets shows the lender that you are a responsible borrower and you don’t just spend all you earn.

The Property

The property itself is another factor that lenders consider. An appraisal is used for this purpose. Some lenders may utilize an automated valuation model (AVM) to assess the value of your home without having to visit the property. Other lenders may demand a full appraisal of both the home you wish to purchase and your current home.

The property appraisal verifies that the home is worth what you paid for it. It also informs the lender about the property’s status. These factors are among those that a lender considers while deciding whether or not to grant a loan on the house.

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7 Tips on How to Get a Mortgage in Canada Approved 

1. Check Your Credit Score Each Quarter

Credit scores range from 300 to 900 across five categories in Canada: Poor, Fair, Good, Very Good, and Excellent. The specific categories depend on which credit bureau is utilized, but the procedure is essentially the same. Your credit score reflects your entire financial situation at a particular time, so you must know what it is.

Mortgage lenders will assess your financial trustworthiness and capacity to repay debts based on your credit score. The higher your credit score, the higher your chances of getting the lowest mortgage rates in Canada. You should target a score of at least 660, but anything over 700 is excellent.

Your credit report will also contain information on late payments, how many accounts you have open, your total debt levels, and the length of your credit history. Maintaining a good payment record by making loan and bill payments on time while avoiding excessive usage of your available credit generally raises your score.

Several online services provide you with the opportunity to check your credit score for free. Using an internet credit check, your credit score will be pulled from one of Canada’s two credit bureaus, Equifax or TransUnion. It’s a good idea to look at your credit score at least each quarter and do all you can to improve it.

2. Make a Larger Down Payment

A down payment is a sum of money that you must put up before purchasing a house. It’s also known as a down payment—the bigger your down payment, the better, for various reasons. The main reason is that the larger your down payment, the less mortgage you’ll need to borrow and the less interest you’ll pay. 

However, getting approved also depends on your down payment. In Canada, down payment minimums are set according to the property’s price:

• Properties less than $500,000: The down payment must be at least 5% of the purchase price.
• $500,000 to $999,999: 5% of the first $500,000, and 10% for the part of the purchase price over $500,000.
• $1 million+: You’ll need at least 20% of the total purchase price.

The buyer must pay mortgage loan insurance if the down payment is less than 20% of the home’s purchase price. These premiums will raise your monthly mortgage payment.

So, you’ll want to put as much money away as possible for your down payment. Of course,  it’s a lot easier said than done, especially when properties in cities like Toronto cost over a million dollars. However, the more significant amount of cash you put down upfront, the more likely you will obtain approval from a lender.

3. Maintain a Stable Income

To get a mortgage in Canada, you’ll need to show that you can afford the monthly payments. In many cases, lenders will ask for proof of consistent employment over a few months. They may also request your notice from work if there’s any chance you could be laid off before the end of the term.

If you’re employed casually, it’s worth looking for a full-time role throughout your mortgage application, even if it’s just part-time. Getting a suitable mortgage with a low rate might save you hundreds of dollars over the life of your loan, so getting some more steady employment while you finish may be worthwhile.

If you’re self-employed, provide proof of your average monthly business revenue over the past two years. This will be used when calculating your debt-to-income ratio during the application process. Your lender wants to ensure that your mortgage payments won’t be more than 32% of your gross income.

Lenders will also want to make sure that you can afford other housing expenses like property taxes and heating costs. If you’re self-employed, one of the best things you can do to get accepted for a mortgage is work with a qualified mortgage broker. Mortgage brokers have all of the background information you’ll need to complete your application correctly.

4. Pay Off any Outstanding Debt You Have First

Your outstanding debt is a major determinant of how to get a mortgage in Canada approved. Before applying for a mortgage, you must pay off all your outstanding debts, including credit cards. Lenders want to make sure that after approving your application, they will not encounter problems when processing the loan.

A mortgage is a long-term obligation, so you’ll want to minimize any existing debt as much as possible. If you don’t have other bills to pay, paying your mortgage will be considerably easier when you get it. Existing liabilities will make obtaining a loan more difficult since lenders will examine your debt-to-income ratio when deciding whether they should lend to you or not.

Your credit cards balances, lines of credit, etc, do not need to be at $0. However, existing debt will have an impact on how much you can borrow and at what rate. Keeping debt levels low is also beneficial to your credit score.

Regardless of the amount, lenders prefer borrowers with a “clean” credit record.

5. Look for Properties that are Less Expensive than You Can Afford

If you can’t afford to buy a million-dollar home, don’t apply for one. A bigger house means more expensive monthly payments, which will make financing difficult. If there isn’t enough equity in your property, it might not even be worth applying for the loan at all.

Generally speaking, your best bet is to buy a property that is about 25% less than what you can afford.

6. Obtain a Mortgage Pre-approval

If you have an idea of the mortgage amount you are looking for, speak to your financial institution about getting a “mortgage pre-approval.” This is different from just applying for a mortgage because it shows lenders that you have already entered into the early stages of the application process. 

At this point, not only will lenders already know your financial situation, but they will also have an idea of how much you can potentially borrow. A mortgage pre-approval is a beautiful thing to have since it enables you to look for homes within your budget while also allowing you to submit an offer as soon as possible.

7. Shop Around for a Great Mortgage Rate

It’s one thing to know how to get a mortgage in Canada and another to get the best mortgage rate. When it comes to buying your new home, you’ll want to find the best possible mortgage rate. This is why it’s so vital that you compare rates on properties and rates on mortgages.

You can easily shop around online by visiting different lenders’ websites and completing their mortgage application forms. Using a mortgage broker will also help you find lenders who are offering lower rates. With a better mortgage rate, your monthly payments will be lower, making it simpler to pay off your loan. This will generally make it simpler to get accepted for a mortgage and borrow more.

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The Mortgage Stress Test

The stress test determines whether or not you can still afford to pay your mortgage if rates rise. The results of this stress test will impact your eligibility for the mortgage you’re looking to acquire, and it applies to all home purchasers, even those who put down a 20% down payment.  

This is why it’s crucial to get a mortgage that you can afford, even if interest rates rise. It also makes sense to purchase a home that you can still afford even with a higher interest rate on your mortgage. 

Mortgage Term vs. Amortization

The length of time your mortgage’s terms and conditions are guaranteed is known as the mortgage term. If you have a fixed-rate loan, your mortgage rate will stay constant throughout the period.

The mortgage amortization is the length of time it will take you to pay off your mortgage in full. A standard term of 25 years has been established in Canada, although this may be shortened or extended (as long as you can pass the mortgage stress test).

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Where Can You Get a Mortgage in Canada?

Bank

Your first instinct when purchasing a mortgage is most likely to go to your local bank branch, where you maintain your chequing account. Banks provide a variety of services, and it’s possible that having all of your essential finances in one location is more convenient. Yet, you may not always receive the greatest rates. 

There are still advantages to obtaining your mortgage from a bank. For instance, you’ll be dealing with a familiar company, and personal relationships may provide perks. However, it is ultimately up to you to do your research and determine whether what your local bank branch is offering you is fair.

Virtual Banks

Another option is to look into the interest rates offered by online banks, such as Tangerine Mortgage. Online banks don’t have physical branches. Because of their lower overhead costs, they’re often able to provide more competitive mortgage loans than traditional lenders, especially for long-term, fixed-rate mortgages.

SEE >>> Tangerine Mortgage

Mortgage Brokers

Mortgage brokers serve as the liaison between you and a variety of lenders. They can help identify what type of mortgage is best for your needs, shop around on your behalf, and even apply to several banks on your behalf. A mortgage broker has access to many lenders and can offer you unbiased advice since they aren’t affiliated with any one lender.

READ ALSO >>> Mortgage Broker vs Bank

Online Mortgage Broker

An online mortgage broker can save you time and money by providing access to several more lenders than your local broker. The more options you have, the greater control you have over your situation. 

You may also discover a lower price by using multiple lender alternatives. Not only that, but if you’ve been turned down for a loan from your bank in the past, the good news is that you may still use online mortgage brokers to look for one.

SEE >> Homewise Mortgage Reviews

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The Different Types of Mortgages

Knowing how to get a mortgage in Canada is incomplete if you don’t know the types of mortgages available. They are:

Insured Mortgage

When you take out an insured or high-ratio mortgage, you’re required to pay mortgage default insurance to the lender to protect them in case you can’t make your payments. As a result, most lenders provide their lowest mortgage rates on these types of loans (but this is offset by the mortgage default insurance you’ll have to pay).

Insurable Mortgage

An insurable mortgage is a loan that doesn’t require mortgage default insurance because you’ve put down at least 20% for your down payment. The disadvantage is that you’ll pay a higher mortgage rate than an insured mortgage because it’s less secure for lenders.

Uninsurable Mortgage

An uninsured mortgage does not meet the government’s standards for insured mortgages. Purchases worth more than $1 million and 30-year amortizations are examples of uninsurable loans. Uninsurable mortgages, therefore, tend to have the highest rates in the market.

Open vs Closed Mortgage

Open mortgages are those that allow you to pay off your home at any time without penalty. They could, however, cost you more interest over the long run. On the other hand, closed mortgages only provide for bi-weekly or monthly payments and do not permit you to make extra mortgage payments. As a result, they’re cheaper in terms of mortgage rates.

MORE >> Open vs Closed Mortgage

Fixed vs. Variable Mortgage

A fixed-rate mortgage is one with a steady rate of interest for the entire period of your loan. With this type of mortgage, you know exactly how much your monthly payments will be. 

On the other hand, with a variable-rate mortgage, your interest rate can increase or decrease as market rates do. Variable-rate mortgages are outstanding for people who want to take advantage of lower rates, but only if they can afford to pay more in the future.

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How to Get a Mortgage with Low Income in Canada

1. Consider Purchasing a Property with Rental Potential

If you have a low income but a steady cash flow, buying a house with rental potential is an excellent way to boost your chance of being approved for a mortgage. The lender will expect you to cover the difference between your monthly payments and the rent you’ll receive from the property. The rent you receive will help you to qualify for a higher loan amount since your debt ratio will be lower than if you were buying the house for your use only.

2.  Take Advantage of the RRSP First-Time Home Buyers’ Plan (HBSP)

Your registered retirement savings plan (RRSP) is another excellent source of down payment money you may use to purchase your first house. The RRSP First Time Homebuyer Plan permits you to borrow up to $35,000 tax-free. You can withdraw up to $70,000 from your RRSP as a combined amount if you’re buying the home with someone else. Therefore, it’s an appropriate answer to how to get a mortgage in Canada with a low income.

How to Qualify for a Mortgage Canada with the RRSP First Time Homebuyer Plan:

• You must be a Canadian resident
• Be a first-time buyer
• You must have a written agreement to acquire or construct a home that qualifies under the HBP.
• Make sure you plan to use the home as your primary residence

If you are not a first-time home buyer, there is a four-year waiting period before you may again take advantage of the HBP, provided you fulfill all other requirements.

3. The Government of Canada’s Shared Equity Interest Program (SEIP)

The Shared Equity Interest Program is designed for low and moderate-income earners and provides another way to work towards homeownership. Under the SEIP, you may borrow up to 10% of the purchase price of a new home (or 5% of the price on a resale property) at 0 percent interest and add it to your required down payment.

When the property is sold, the loan must be repaid in full or after 25 years.

How to Qualify for a Mortgage with SEIP:

• You must have a combined household income of no more than $120,000. 
• The home has to be worth four times your household’s yearly earnings. 
• You must put down at least 5% of the purchase price.

The government will become a part-owner of your home and participate in a shared equity loan rise or drop in property value. The government will technically own a 5% stake in your house. You must repay the amount you borrowed together with 5% of the property’s appreciation when you sell it.

4. Get a Co-Signor

Getting a co-signor is another tactic on how to get a mortgage in Canada with a low income. If you cannot meet the lender’s minimum income requirements, you may ask a family member or friend to co-sign on your mortgage application. If they have an excellent credit history and can prove that they earn three times as much as you do, the two of you together will be able to qualify for a higher loan amount. 

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Final Takeaway: How to Get a Mortgage in Canada

Now that you know how to get a mortgage in Canada, you can see that there are numerous aspects to consider when purchasing a mortgage. The mortgage application process might be complicated, but it doesn’t have to be. You should be better informed the next time you apply for a mortgage after reading this article. 

The procedure will go much more smoothly if you know exactly what mortgage lenders are looking for, where you should seek advice, and what to anticipate.

What’s next after you’ve found the house of your dreams, secured a down payment, and finally become a homeowner? It’s time to start considering a Will. It’s essential to have a Will as soon as you have any assets, such as your home. Find out why you need a Will and how to write one properly.

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