Mortgage Approval in Canada

How to get approval for mortgage (step by step)

Let’s break down each stage into smaller steps, so you have a better understanding of what to expect.

Initial consultation

You’ll get in touch with your broker either in person or over the phone to map out your mortgage approval journey. The amount of time this takes will depend on your broker, but generally, this shouldn’t take longer than an hour.

1. What happens? During the conversation, your broker will ask you questions about your financial situation, so they can determine if you qualify for a mortgage in the first place and estimate how much money you can borrow.
2. And then what? If you decide to proceed with a formal mortgage application, your broker will outline what will need to get done for your submission to go through and your mortgage to get approved.

Pre-approval

During this process, you’ll need to supply your broker with several documents to ensure that what was discussed earlier aligns with reality. If you’re quick, this shouldn’t take longer than a day. Here are the steps:

1. Procure a document checklist & application. Your broker should provide you with a personalized checklist for your mortgage approval application, along with the application itself and a privacy consent form. The documents on the checklist will include things like proof of income (e.g. pay stubs, T4 tax forms, etc.), basic financial information (e.g. credit score), down payment confirmation (e.g. statement of savings or investments) and property details (e.g. final purchase and sale agreement). Take your time to track down each document, as you’ll need them all for your application.
2. Send everything to your broker. Once your broker has your application and documents, they will access your credit bureau report and debt profile. They will then combine this information with the information you send to them to create a file that paints a picture of your current finances.
3. Get a list of lenders. With this in hand, the broker will compile a list of lenders that are a good fit for your financial situation and review your file with them ahead of the application – to increase the likelihood of approval.

Application submission & approval

This is the longest and most important part of your mortgage approval journey – the actual submission process and approval. This may take up to a month, or longer.

1. Submit the application. Once your ideal lender is identified, you and your broker will submit the application and supporting documents to the lender.
2. Wait for your underwriting results. It may take from 24 to 72 hours for an underwriter to review the application. What underwriters do during this time is determine the risk of lending to you by analyzing your application against their specific qualifications. Your income, credit history, down payment savings (or equity) and the property mortgage are all factors that underwriters consider. The stronger these pillars are, the likelier your application is to get approved. However, even if one of them isn’t as strong as the others, your application may still get approved. If the lender either declines or doesn’t respond quickly enough, your broker will resubmit the application to a different lender.
3. Review your conditional commitment. Once the underwriter accepts your application, your broker will receive what’s called a ‘conditional commitment’ – meaning your mortgage is approved, but you may need to meet certain conditions. These conditions involve providing documents that prove your income, employment and property details. In most cases, the documents you provide upfront should satisfy these conditions. Your broker will get in touch with you to discuss the offer, and if you accept, you’ll work with them to meet the lender’s conditions.
4. Notify your lawyer & real estate agent. This step goes in tandem with the last. Notify both your real estate agent and lawyer that your mortgage has been approved. If your offer to purchase has a financing condition, your real estate agent should remove it. In the meantime, your lawyer and lender will work on preparing and registering the mortgage (with the Land Titles Office) and transferring the title of the property to you. Do note that you may need to give your lawyer a fully executed Offer to Purchase.
5. Finalize your paperwork. For this step, you’ll have to meet with your lawyer to sign the relevant documents, provide the down payment and closing costs as well as satisfy your remaining ‘Solicitor Conditions’ (such as paying off debts you promised to pay off). Be aware that it’s still possible for your lender to back out of the deal. This can occur if there are any changes in your financial situation or if their conditions are not sufficiently met.
6. Receive the funds. Once everything goes through, the lender will transfer the money to your lawyer’s trust account, who will then transfer it to you. If this is a purchase, the lawyer will register your name on title, while the real estate agent will give you the keys to your new home.

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Factors that can get your mortgage application disapproved

Few things sting more than a rejection. In the case of mortgage, it’s doubly so, because it means that you can’t own a home. At least, not until you address some of the risk factors that can get your mortgage application disapproved.

Here’s what they are (and what you can do about them):

1. Car loan(s)

A car is arguably the second most expensive purchase you’re likely to make (after a home, of course). Generally speaking, the more debt you accumulate, the less of your income you can dedicate to your mortgage. If your debt-to-income ratio is too high (43% or above), then your application will get rejected.

Solution: There are two things you can do: either wait until your car and other debts are paid off or have a higher income. Some lenders are more lenient on this than others, but the best ones are less so. You should always aim to lower your debt-to-income ratio – not just to secure a mortgage, but to avoid bankruptcy.

2. No credit

Without a credit history, you’ll have a hard time proving that you can pay your bills on time. In fact, this can be worse than having bad credit, as you basically have nothing to show at all (though we don’t advise having bad credit either).

Solution: The good news is that you don’t have to open a credit card and wait another couple of years. Some lenders provide loans to people with unconventional or non-existent credit histories – by accepting documents that prove regular payments to landlords, utility companies and other parties. This is especially useful to newcomers to Canada, as they normally don’t have any credit history (good or bad).

3. Bad credit

If your credit score is lower than 753, then it is below-average. Even if it’s higher than that, it can’t make up for inconsistent or ‘bad’ credit history. Missed payments, defaulted loans and similar issues can give lenders the impression that you can’t stay on top of your payments – or keep your credit score high.

Solution: You can either take your time to build a consistently good credit history by staying on top of all your bills and payments, or you can go with an alternative lender. For instance, private mortgage lenders in Canada, like Clover Mortgage and Alpine Credits, have no minimum credit score requirements – but they do have high interest rates and fees. That’s why we recommend trying out places like credit unions, monoline mortgage lenders and mortgage investment corporations first (also called ‘B lenders’), as they tend to be a bit cheaper.

Note that private mortgage lenders should be your last resort, and if you do decide to go with one, create a plan to transition to a top lender down the road.

4. Spotty employment history

Inconsistent employment history shows lenders that you are reliable enough to make regular payments. While mortgage applications typically cover only three years of work history, lenders try to assess your career in its totality, including your current trajectory, to see if you’ll have issues in the future. Their end goal is to have you pay them back. If they think you can’t, they’ll reject you.

Solution: If you’ve changed jobs often or have long employment gaps, you can still secure a mortgage, provided your current employment situation is stable – and you can prove it. It’s best to reach out to lenders directly and ask them what you can do. Having a broker can also help, as they usually go over all your options ahead of the application.

5. You’re self-employed

Whether you’re a business owner, contractor or freelancer (aka you’re self-employed), your income depends solely on you, and that makes you appear less stable to lenders than someone working for a reputable company.

Solution: If you’re an entrepreneur at heart, and you really don’t want to be tied down by a job, there are still options for you. Your best bet is to have enough documentation and history to prove that your current situation is financially stable. Lenders with the best rates require at least two years of your income tax history, so make sure it paints you in a positive light. If you’re not there yet, which is understandable, then you can’t expect mortgage approval – not until your finances improve.

6. Changes to your credit

If you’ve applied for a mortgage, got pre-approved and then still got rejected, it may be due to the changes in your credit activity. Opening new lines of credit or making large purchases can nullify your lender’s earlier decision about you, which may get you rejected.

Solution: Stay on budget until your mortgage is 100% approved.

7. Not enough savings

Having savings shows that you have enough funds to pay back your loan. While your income is certainly a factor, savings act as an additional safety net. They can cover sudden unemployment and unforeseen expenses.

Solution: Start a savings account and rework your budget to ensure you always have enough money going into it.

8. Small down payment

If your down payment is less than 20% of the purchase price, you may not qualify for a mortgage. Your mortgage application must follow the mortgage default insurer rules, which are stricter than lender guidelines (though 5% and 10% down payments are acceptable, depending on the price of your home).

Solution: Save enough money for a proper down payment or consider buying a cheaper home.

What do I do if I got rejected?

Take the time to analyze your current financial situation and reduce your risk factors. If you’re unsure about your situation, consider contacting a mortgage broker. Once you’re good to go you can always re-apply with a different lender or even appeal the rejection.

At the end of the day, it’s within your interest to pay off your mortgage. So, while the above-listed factors may come off as overly restrictive, mitigating them will be beneficial to you, regardless of whether you’re applying for a mortgage or not.