Qualifying for a mortgage in Ontario involves meeting certain criteria set by lenders. These criteria include having a stable and verifiable income, a good credit score, and a sufficient down payment.
Before you start shopping for a mortgage, it’s important to assess your financial situation. You can do this by checking your credit report and making sure it doesn’t contain any errors. If you don’t have a good credit score, the mortgage lender may refuse to approve your mortgage, approve your mortgage for a lower amount or at a higher interest rate, or only consider your application if you have a large down payment.
To qualify for a mortgage, you have to prove to your lender that you can afford the amount you’re asking for. Mortgage lenders and mortgage brokers use your financial information to calculate your monthly housing costs and total debt load. They use this information to determine what you can afford. Lenders and brokers consider information such as your income (before taxes), your expenses (including utilities and living costs), the amount you’re borrowing, your debts, your credit report and score, and the amortization period.
Your total monthly housing costs should not be more than 39% of your gross household income. This percentage is also known as the gross debt service (GDS) ratio. You may still qualify for a mortgage even if your GDS ratio is slightly higher. A higher GDS ratio means you’re increasing the risk of taking on more debt than you can afford.
Your total debt load should not be more than 44% of your gross income. This includes your total monthly housing costs plus all of your other debts. This percentage is also known as the total debt service (TDS) ratio. You may still qualify for a mortgage even if your TDS ratio is slightly higher. A higher TDS ratio means you’re increasing the risk of taking on more debt than you can afford.
Federally regulated entities, like banks, require that you pass a stress test to get a mortgage. This means that you need to prove you can afford payments at a qualifying interest rate. This rate is typically higher than the actual rate in your mortgage contract. You need to pass this stress test even if you don’t need mortgage loan insurance.
If you’re unable to meet these criteria, there are other options available such as private mortgage lenders. It’s always a good idea to speak with a mortgage specialist to understand how qualification rules can affect your mortgage loan.
I hope this information helps you understand more about how to qualify for a mortgage in Ontario! 😊