Do I Qualify for a Mortgage?

Many renters wonder if buying a home is really within their reach. It often seems like quite a daunting purchase for the first time buyer. The good news is that with the large variety of options available today, it has never been easier to secure a mortgage.

The first prerequisite to buying a home is having a minimum down payment of 5%. This can come by way of accrued savings, a gift from an immediate family member, and/or cash back (which essentially means nothing down). Today, home buyers can make tax-free withdrawals from their RRSPs and use these proceeds toward their home purchase. This method has allowed countless buyers obtain the necessary down payment. The maximum RRSP withdrawal amount is $40,000 per couple, or $20,000 for an individual. The RRSP withdrawal must be returned to the plan over a 15-year period.

When the down payment is less than 25%, it will result in a so called "high ratio" mortgage which requires both the lender's approval and Canadian Mortgage Housing Corporation, or GE, approval. These two bodies act as insurers for the financial institution. The purchaser pays a one-time insurance fee which is then built into the total mortgage. A down payment equal or greater than 25% results in a so called "conventional" mortgage.

The second prerequisite to buying a home is having sufficient income to qualify for the home purchase. Financial institutions set standard guidelines that determine how large a mortgage a borrower can get. Interest rates play a major role in establishing the size of the mortgage that can be obtained. It is essential to determine how much financing you can secure before you start house hunting. You do not want to fall in love with your dream home only to find out that the banks will not advance the total amount required. A realtor can help you quickly establish these parameters.

Should your income fall short of these requirements, you can still be creative and see what other alternatives are available. For example, you can use part-time income to qualify for your home purchase.


The final stage in obtaining mortgage approval is a satisfactory review of a prospective buyer's credit rating. Every financial institution is linked to a credit bureau (usually Equifax) where data is collected on a monthly basis reporting the pattern of repayment for such items as credit cards and personal loans. If a consumer has an unblemished credit record, and providing the above mentioned criteria were met, securing a mortgage is a virtual certainty. Should there be any questionable credit transactions, such obstacles can usually be overcome. However, if an individual has very poor credit, this may require significantly more work. If there are good reasons for the substandard credit, it will help in building a case for the derogatory credit. Often times in such cases, CMHC or GE capital (the insurers) will ask the borrower to increase their down payment from 10% to 15% due to the poor credit history. If this option isn't viable for the purchaser then another alternative would be to get a co-signer or guarantor.

Another consideration in getting a mortgage is obtaining a second mortgage. Lenders will often give a 75% loan without asking too many questions about credit, income, etc. Basically their position is that even if the loan does go into default, there is sufficient equity to protect the lender. The shortfall between the first mortgage and the down payment can be made up with a second mortgage. Traditionally, second mortgages will command a higher interest rate but because the amount of the second mortgage is relatively small, it should not significantly increase your monthly cash outlay. The advantage of a second mortgage to a borrower is that any insurance fees associated with a high ratio mortgage are eliminated.

If an individual has declared personal bankruptcy, then in order to qualify for a mortgage, they must have been discharged for at least two years and must also have established one year of exemplary credit. However, If the down payment is greater than 25% the two year period can be reduced.

Today, with all the incentives available to purchasers— such as cash back– coupled with the historically low interest rates and the fact banks now allow for a 30-year amortization, there has never been a better time to explore the home ownership alternative.