Mortgage Blog
Canada's Mortgage Experts
7 Essential Steps to Secure Your Mortgage and Buy Your Dream Home
October 8, 2024 | Posted by: Yelena Markus
Are you looking to buy a home? Purchasing a property in Canada takes careful planning and preparation—both mentally and financially. While it might seem natural to start by browsing open houses or finding the right real estate agent, there’s one important step you don’t want to overlook: securing a mortgage.
Getting approved for a mortgage is a major milestone in the home-buying journey, and it requires taking a thorough look at your financial health. Although that might sound overwhelming, getting your finances in shape before applying for a mortgage can significantly boost your chances of approval and help you secure a great interest rate.
Here are seven key steps to help you get your mortgage application approved.
1. Check Your Credit Score
In Canada, credit scores range from 300 to 900, with categories that include Poor, Fair, Good, Very Good, and Excellent. Your credit score reflects your overall financial health, so it’s essential to know where you stand. Lenders use this score to assess your financial reliability and ability to repay debts. Ideally, a score of at least 660 is recommended, but the higher, the better.
Your credit report also includes information on any late payments, the number of accounts you have, your overall debt levels, and how long you’ve had credit. Staying on top of loan and bill payments and using only a portion of your available credit will help keep your score strong. You can easily check your credit score for free through online services that pull data from Equifax or TransUnion, Canada's two main credit bureaus.
2. Save for a Larger Down Payment
Having a larger down payment not only lowers the amount you’ll need to borrow but can also improve your chances of mortgage approval. In Canada, minimum down payments vary based on the home’s price:
- Less than $500,000: Minimum 5% of the purchase price.
- $500,000 to $1.499 million: 5% on the first $500,000 and 10% on the amount over $500,000.
- $1.5 million or more: 20% of the total purchase price.
If your down payment is less than 20%, you’ll need to purchase mortgage insurance, which increases your monthly payments. That’s why saving as much as possible upfront can make a big difference.
3. Keep Your Income Stable
During the mortgage application process, stability is key. Lenders want to see consistent income to ensure you can make your mortgage payments. If you’ve been with your employer for a while, that’s a positive signal to lenders. If you’re applying with a partner, having both of you in full-time jobs is ideal.
If you're self-employed, you'll need to provide additional documents proving your business is stable and profitable. A licensed mortgage broker can guide you through the best ways to strengthen your application.
4. Pay Down Existing Debt
Managing existing debt is crucial when applying for a mortgage. Lenders will evaluate your debt-to-income ratio to determine how much you can borrow. While it’s not necessary to have zero debt, keeping balances low on credit cards, loans, and lines of credit will improve your approval odds and potentially get you a better rate.
5. Get a Mortgage Pre-Approval
A pre-approval is when a lender evaluates your financial situation and pre-approves you for a specific mortgage amount and rate. Pre-approvals are usually valid for 90 to 120 days, giving you time to find a home without worrying about market fluctuations. This is a helpful tool as it allows you to focus on homes within your budget and act quickly when you find the right one.
6. Shop Around for the Best Rate
Don’t settle for the first rate you find. Shopping around, especially with the help of a mortgage broker, can lead to better rates, which means lower monthly payments and possibly borrowing more. Brokers can provide personalized advice and access to competitive rates without charging you.
7. Know What You Can Afford
Ultimately, how much you can afford depends on several factors, including your mortgage payments, living expenses, and any other financial obligations. Lenders will look at these aspects, but you also need to be realistic about your spending habits and future plans. Unexpected life changes like having a child or switching jobs could impact your ability to meet mortgage payments, so plan conservatively and leave room for the unknown.
Remember, buying a home involves more than just the down payment—there are closing costs, utilities, property taxes, and repairs to consider as well.
The Bottom Line
Securing mortgage approval is all about preparing your financial life. By keeping your credit score high, paying down debt, and saving up, you’ll be in a strong position to buy a home. Even if you’re not ready to buy today, managing your finances well now will set you up for success in the future.
By following these steps, you'll be on your way to homeownership with confidence!
