Understanding Mortgage Qualification

Martin Jensen • March 15, 2017

For the first time home buyer, it's no secret that the mortgage process might seem a little daunting! Buying your first home is a huge decision, and when things "come together", they do so quickly. In order to be as prepared as possible, it's good to have a foundational understanding of mortgage qualification. But don't worry, I will walk through this with you every step of the way. If you ever need anything, contact me anytime!

This is the introduction post to a short series that explores a lender’s decision making process that ultimately leads to your mortgage being approved or declined. Here are some of the topics we will cover in more depth in the coming weeks...

  • Understanding Income
  • Understanding Credit
  • Understanding Downpayment
  • Understanding Property

General Understanding

Although sometimes it may seem like it, let me assure you that it is not your fundamental right as a Canadian to borrow money. In fact, borrowing money for a mortgage in Canada is becoming increasingly difficult. Over the last 5 years, the government has tightened up lending guidelines 4 times and lenders seem to be looking at every mortgage application with a magnifying glass. Most recently OSFI, the government regulator came out and said that they expect a higher level of scrutiny on all mortgage applications.

Ultimately, its the lender who decides if they are comfortable with lending you money, and each lender has their own level of risk tolerance when assessing a mortgage application. Convincing the lender that you are a "good risk" is part of what a mortgage broker does for you!

There are four main areas common to every lender for their assessment. I will outline them for you now, and then follow up with an in depth look at each section over the coming weeks.

Understanding Income


Firstly, you’re looking to borrow money, are you able to pay it back? The lender wants to be assured that you have the ability to repay the money they lend you with interest. So they will ask for documents to support your income, and if they aren’t satisfied with what they get, they will ask for more.

Lenders look at the following:

Employment type – are you employed full time, part time, working seasonally, or collecting a pension?

Employment status – are you a permanent employee, have you passed your probationary period, are you on maternity leave or are you working term contracts?

Tenure – how long have you been employed in your current position, and how long have you been working in that industry?

Income type – are you self-employed, or do you have a guaranteed income, are you using bonus or overtime income, if so, how long have you been making that income?

And the list goes on and on. Obviously the more stable your job is, the longer you have been there, the more qualified you are to do your job, the better. How the lender assesses your income is probably the biggest factor in determining if they will lend you money.

Understanding Credit

Once the lender believes you have the ability to repay the loan, they will have a look at your track record of repaying previous loans. If you can’t make the minimum payments on your $1000 limit Mastercard on time what confidence are you giving the lender that you will make your mortgage payments on time?

In Canada there are 2 main credit reporting agencies, Equifax and Transunion. Typically Transunion is used by consumers to monitor their credit scores personally to protect against identity theft, while Equifax is used by lenders to determine credit worthiness.

Every time you have borrowed money from a financial institution, a history of that loan has been recorded on your permanent credit report. Your credit report is updated regularly as you either make or fail to make payments on your outstanding debts. All of the information including payment history, amount owed, length of credit history, types of credit and new credit is assessed and a credit score is generated.

Lenders look at both your credit score and the history on your credit report when deciding if you are a good risk to give a mortgage.

Understanding Downpayment

Okay, so the lender is satisfied with your income verification and you have a demonstrated history of solid loan repayment through your credit score… now, how much skin do you have in the game?

In order to lend you money for a mortgage, the lender is going to want to see that you have some money saved up for a downpayment. In Canada, the minimum downpayment you are required to come up with is 5%, meaning that the most a lender will offer you on a mortgage is 95% of the total purchase price.

Obviously the more money you apply as a downpayment, the stronger your mortgage application will be. At 20% downpayment, you are able to avoid paying mortgage insurance premiums and take out what is called a conventional mortgage.

In addition to your downpayment, you will also have to prove that you can afford to cover the legal costs in closing your mortgage, you know… paying your lawyer, paying for the registration at land titles, and lots of other small things. Typically this amounts to 1.5% of purchase price, but it can be higher depending on what province you live in.

Understanding Property

This is the wildcard of the bunch. Even if you are the best applicant in the world, you’ve been at your incredible job for 26 years, you have an impeccable credit history, and an enormous downpayment… if the property you are trying to purchase is garbage, you’re not getting a mortgage. Period.

The property is the collateral the lender holds in case you default on your mortgage. Lenders only lend on solid properties.

This means the lender will make every effort to ensure the property they are lending on is without defect. They only lend on properties they consider “prime and marketable”. The best way to look at it is, if you default on your mortgage, and the lender has to repossess the property, how easy would it be for them to sell it and get their money back? And abnormalities make properties less marketable.

So if you are looking on MLS and you find a 600 sq ft, mouldy non-remediated grow op, “handyman special” that has been sitting on the market for 2 years with a basement that is crumbling in on itself (without an engineer’s report), chances are you should just keep looking, no one is going to lend you money on this.

In Summary

As plainly as I can put it, the biggest problem you will face in applying for a mortgage is the potential disconnect between your belief that you are credit-income-asset-worthy to borrow money, in your own mind minimizing your flaws, compared to the lender’s scrutiny of your income-credit-asset worthiness, seemingly making a huge deal out of insignificant issues.

You might want to read that last sentence again.

If you go into the bank, the banker has the bank’s best interest in mind, they work for the bank, paid by the bank, to limit the risk to the bank while making money for the bank. In no way do they work or represent you. On the other hand, when you work with me, I work for you, with your best interest in mind. I present your application to a lender or several lenders in a way that highlights your strengths and explains any shortcomings. I use my knowledge, experience and relationships to advocate on your behalf making sure to put forward a clear and concise mortgage application ensuring the best chance for an approval. As an added bonus, my services are free to you.

Over the next couple of weeks and months I will be digging in a little deeper on each of these points and sharing more about how a lender looks at your mortgage application. Keep an eye out!

If you have any questions about this, or would like to sit down and discuss applying for a mortgage, please feel free to contact me anytime! I would love to talk with you.

RECENT POSTS

Parental Leave

By Martin Jensen • June 25, 2025
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.

First-Time Homebuyer? A New GST Rebate Could Put Thousands Back in Your Pocket

By Martin Jensen • June 20, 2025
If you’re a first-time homebuyer eyeing a new build or major renovation, there's encouraging news that could make homeownership significantly more affordable. The federal government has proposed a new GST rebate aimed at easing the financial burden for Canadians entering the housing market. While still awaiting parliamentary approval, the proposed legislation offers the potential for thousands in savings —and could be a game-changer for buyers trying to break into today’s high-cost housing landscape. What’s Being Proposed? Under the new legislation, eligible first-time homebuyers would receive: A full GST rebate on homes priced up to $1 million A partial GST rebate on homes between $1 million and $1.5 million This could mean up to $50,000 in tax savings on a qualifying home—a major boost for anyone working hard to save for a down payment or meet mortgage qualification requirements. Why This Matters With interest rates still elevated and home prices holding steady in many regions, affordability remains a challenge. This rebate could offer meaningful relief in several ways: Lower Upfront Costs: Removing GST from the purchase price reduces the total amount of money buyers need to save before closing. Smaller Monthly Payments: A lower purchase price leads to a smaller mortgage, which translates to more manageable monthly payments. Improved Mortgage Qualification: With a reduced purchase amount, buyers may find it easier to meet lender criteria. According to recent estimates, a homebuyer purchasing a $1 million new home could see monthly mortgage payments drop by around $240 —money that could go toward savings, home improvements, or simply everyday expenses. Helping Families Help Each Other This proposal also offers a win for parents who are supporting their children in buying a first home. Whether through gifted down payments or co-signing, a lower purchase price and more affordable monthly costs mean that family support can go further—and set first-time buyers up for long-term success. Is This the Right Time to Buy? If you’re thinking about buying a new or substantially renovated home, this proposed rebate could dramatically improve your financial position. Now is the perfect time to explore your options and make sure your mortgage strategy is aligned with potential policy changes. 📞 Let’s connect for a free mortgage review or pre-approval. Whether you’re buying your first home or helping someone else take that first step, I’m here to help you make informed, confident decisions.

Worried About Your Mortgage Renewal? You’re Not Alone

By Martin Jensen • June 18, 2025
Worried About Your Mortgage Renewal? You’re Not Alone  If your mortgage renewal is coming up soon, you're likely feeling a bit of financial pressure—and you’re not the only one. A recent survey shows that over half of Canadian homeowners believe their upcoming mortgage renewal could impact their current living situation. With interest rates still higher than what many borrowers locked in before 2022, 45% of those renewing in the next 12 months expect their monthly payments to increase. Even though the Bank of Canada has held its key overnight rate steady at 2.75%, borrowing costs remain elevated compared to the low-rate years we saw earlier in the decade. And that’s changing how Canadians think about their finances. Changing Plans and Tightening Budgets Among those worried about their renewal, 73% say they’re already cutting back on discretionary spending—things like eating out, entertainment, or travel—to brace for higher mortgage payments. For many, it goes deeper than just trimming the budget. Nearly one in four surveyed homeowners said they’re rethinking their entire financial strategy. Some are pressing pause on home renovations (43%), while others are considering downsizing or relocating to a more affordable area (29%). A smaller group (15%) is even open to major lifestyle changes, like moving in with roommates or relocating to a new neighbourhood altogether. Fixed-Rate Mortgages on the Rise In this climate, most homeowners looking to renew are leaning toward fixed-rate mortgages, with 75% preferring the stability of predictable payments. For those facing uncertainty, locking in a rate for the next few years can offer peace of mind—even if it means paying a little more in the short term. First-Time Buyers Are Feeling It Too It’s not just current homeowners feeling the pinch. A separate survey found that more than half of Canadians planning to buy a home are cutting back on non-essential spending to save for their down payment or other buying costs. About 31% are even considering tapping into savings or investment accounts like TFSAs, RRSPs, or first-time home savings accounts to make their purchase possible. What This Means for You Whether you’re preparing to renew or purchase for the first time, this environment calls for smart, strategic planning. You’re not alone in feeling uncertain—but with the right guidance, you can navigate these changes confidently. Have questions about your upcoming renewal or wondering what type of mortgage is right for today’s market? Let’s connect. We're here to help you make informed, confident decisions about your home financing.
More Posts