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

Going Through a Divorce? Don’t Let Your Credit Take the Hit

By Martin Jensen • July 22, 2026
Going Through a Divorce? Don’t Let Your Credit Take the Hit Divorce is stressful enough without adding financial fallout to the mix. Between lawyers, paperwork, and emotional strain, it’s easy to overlook how a separation can impact your credit. But your financial future depends on protecting it now—because long after the dust settles, a damaged credit score can linger. Here are a few smart steps to help keep your credit strong and your finances steady as you move forward. 1. Take Control of Joint Debts When it comes to joint debt, both parties are equally responsible—no matter what your divorce agreement says. If your ex misses a payment on an account with your name attached, your credit takes the hit too. Go through all joint credit cards, loans, and lines of credit. Wherever possible: Close joint accounts to stop future shared use. Transfer balances to the person responsible for repayment. Notify lenders in writing of any changes to account ownership. Once everything is updated, pull your credit report after three to six months to confirm all joint accounts have been closed and reporting correctly. Mistakes happen—stay proactive to prevent surprises later. 2. Open Your Own Bank Accounts Separation means financial independence, and that starts with your own banking. Open a new chequing account in your name only and redirect your pay deposits and bill payments there. At the same time, close any joint bank accounts and change passwords on existing online banking and credit profiles. Even in peaceful separations, shared access can cause confusion—or conflict. Protect yourself by ensuring your money and information are secure. 3. Start Building Credit in Your Name If most of your past credit was tied to your spouse’s name, now’s the time to establish your own. Apply for a small personal credit card or secured credit product . Use it sparingly and pay it off in full each month. This helps you build a solid individual credit history, setting the stage for future goals like buying a home, refinancing, or starting fresh financially. 4. Keep an Eye on Your Credit Monitor your credit report regularly for errors or unexpected changes. You can request free reports from both major credit bureaus in Canada— Equifax and TransUnion —once a year. Tracking your credit isn’t just about catching mistakes; it helps you see your progress as you rebuild your financial independence. Final Thoughts Divorce can be emotionally draining, but protecting your credit doesn’t have to be complicated. By taking a few careful steps now—closing joint accounts, building credit in your name, and monitoring your reports—you’ll safeguard your financial health and gain peace of mind as you start your next chapter. If you’d like personalized guidance on managing credit during or after a divorce, reach out anytime. I’d be happy to walk you through your options.

Bank of Canada Holds Rate at 2.25% — July 15, 2026

By Martin Jensen • July 15, 2026
The Bank of Canada announced today that it is holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The tone of today's announcement is notably more optimistic than previous months. Here's what's changed and what it means for you.

Employment and Mortgage Qualification: What Lenders Look For

By Martin Jensen • July 8, 2026
When you apply for a mortgage, your employment history and status carry a lot of weight. Even if you feel secure in your job, lenders need proof that your income is reliable and will continue. To them, your employment status is one of the strongest indicators of whether you can make your mortgage payments long term. Here’s how lenders typically view different employment situations: Permanent Employment This is the gold standard. Once you’ve passed any probationary period and hold permanent status, lenders see you as a lower risk. It shows that your employer is committed to you, and your income is steady. Probationary Periods If you’re still on probation—usually 3 to 6 months, though sometimes longer—lenders may hesitate. That’s because your employer can end your contract without cause during this period. Once probation is over, you’re considered more secure. That said, context matters. If you’ve worked with the same company for years as a contractor and just transitioned into full-time employment, lenders may accept a letter from your employer confirming that probation is waived. Documentation is key here. Parental Leave Being on or about to take parental leave doesn’t mean you can’t qualify for a mortgage. As long as you have a letter from your employer guaranteeing your position and return-to-work date, lenders can use your regular salary—not your leave income—when assessing your application. Term Contracts This is one of the trickiest categories. Even highly skilled professionals with strong incomes can face challenges here. A term contract has a start and end date, which makes lenders question the stability of your future income. To use term-contract income, lenders generally want to see at least two years of history, or proof that your contract has already been renewed. The more evidence you can show of consistent employment, the stronger your case will be. The Bottom Line If you’re planning to apply for a mortgage, it’s important to understand how your employment status could affect your approval. Whether you’re starting a new job, coming back from leave, or working under contract, lenders want documentation that proves your income is reliable. 📞 If you’ve recently changed jobs or are planning a career shift, let’s connect. I can help you prepare your file so you qualify with confidence and avoid surprises in the approval process.