Introduction
The first step in buying a home is reviewing your finances to understand your budget, as it ultimately determines the type and location of properties within reach. If you’ve already done this, head back to our Ultimate Home Buyer’s Guide to continue with the next steps.
1. Main Requirements: Down Payment, Credit Score, and Income
Before applying for a mortgage, conduct a self-assessment of your finances. Determine how much you have available and how much you’ll need to borrow, ensuring you’ll be able to maintain financial stability after taking on a mortgage.
Pro Tip: Review your finances before applying, as a rejected application could impact your credit score. This is why our mortgage partners help clients understand their financial position before submitting any applications.
The main qualifying factors for a traditional mortgage are your down payment, credit score, and income. In this section, we’ll review the minimum requirements. If you’re new to the country without a local credit history or income, don’t worry—you may still qualify for a mortgage!
2. Minimum Down Payment Requirement
The down payment is your upfront contribution to the home purchase, with the lender covering the remaining balance. In Canada, lenders require a minimum down payment.
If the down payment is less than 20%, you’ll need mortgage loan insurance, costing between 0.6% and 4.0% of the total loan. For homes priced at $1 million or more, a 20% minimum down payment is required. See our CMHC Insurance Calculator for an estimate.
Note: Each bank has unique policies, so this guide provides a general standard only.
3. Credit Score Requirements
Lenders use your credit history to assess your repayment reliability. In Canada, the minimum credit score for a mortgage is generally 600, though in Ontario, this can vary between 600 and 680 depending on the lender.
While a 680 score might meet the minimum, higher scores improve your chances of approval and provide access to better mortgage rates.
4. Income and the Mortgage Stress Test
Aside from credit score and down payment, your income is assessed through the Mortgage Stress Test. This test verifies your ability to make mortgage payments should interest rates rise, regardless of insurance status. Federally regulated lenders and credit unions require this test.
The test calculates your ability to pay at the “qualifying rate,” which is the higher of:
- The current Bank of Canada five-year benchmark rate (5.25% as of August 10, 2022)
- Your mortgage rate + 2%
Generally, this means you may be able to borrow up to 4.5 times your annual income.
Pro Tip: Reducing existing debts can improve your debt-to-income ratio, which positively impacts the stress test results. Lowering debt won’t prevent you from qualifying, but it can enhance your chances!
To get a quick mortgage estimate, try our Mortgage Affordability Calculator.
5. Shopping for Mortgages
Just as homes vary, mortgage programs do too, with each lender offering unique options. Explore multiple lenders to find the mortgage that best aligns with your financial goals. At Team Priscilla Han Realty, we partner with various lenders to offer you a range of options, tailored to fit your situation.
For more on mortgage types and selection, see our Mortgage Guide.
Call to Action: Ready for pre-approval? Contact us to explore the best financing options tailored to you!