Top Tips for Residential Mortgage Approval
- Cornell Haynes
- Nov 14
- 10 min read
Updated: Nov 16
Navigating the world of residential mortgages can feel overwhelming, especially for first-time homebuyers. With so many factors influencing approval, understanding the process is crucial. This guide will provide you with top tips to enhance your chances of securing a mortgage and making your dream home a reality.
Understanding Mortgage Basics
Before diving into the tips, it's essential to grasp the basics of mortgages. A mortgage is a loan specifically for purchasing real estate, where the property itself serves as collateral. There are various types of mortgages, including fixed-rate, adjustable-rate, and government-backed loans. Understanding these options will help you choose the right one for your financial situation.
Key Mortgage Terms to Know
Principal: The amount of money you borrow.
Interest Rate: The cost of borrowing the principal, expressed as a percentage.
Term: The length of time you have to repay the loan, typically 25 to 30 years. However, 40 to 50 year amortizations are available from alternative lenders.
Down Payment: The upfront payment you make when purchasing a home, usually expressed as a percentage of the home's price.
Improve Your Credit Score
One of the most significant factors lenders consider is your credit score. A higher score can lead to better loan terms and lower interest rates. Here are some strategies to improve your credit score:
Check Your Credit Report: Obtain a free copy of your credit report from equifax or trans union and review it for errors. Dispute any inaccuracies you find.
Pay Bills on Time: Consistently paying your bills on time can significantly boost your score.
Reduce Debt: Aim to lower your credit card balances and avoid taking on new debt before applying for a mortgage.
Avoid co-signing on the debt of others: While it may seem like a nice thing at first, addition additional debt to your credit load leading in to a mortgage application could destroy your ability to qualify for a Prime mortgage which could leave you in a situation where only Sub-Prime lenders are willing to offer you mortgage financing. This would typically mean a higher interest rate than you would otherwise qualify for.
Save for a Down Payment
A larger down payment can improve your chances of mortgage approval and reduce your monthly payments. Here are some tips for saving:
Set a Budget: Create a budget that prioritizes savings for your down payment.
Open a Dedicated Savings Account: Consider opening a high-yield savings account specifically for your down payment.
Cut Unnecessary Expenses: Identify areas where you can cut back on spending to increase your savings.
Get Pre-Approved or Understand How Much Home You Could Afford Based on Your Budget
Getting pre-approved for a mortgage can give you a competitive edge when house hunting. Here’s why:
Shows Seriousness: A Realtor is more likely to take you seriously if you have a clear indication from a Mortgage Agent prior to speaking about what you are looking for. however, most Realtors are able to connect buyers with a Mortgage professional.
Set's Expectations: Depending on how much equity is available or how income is generated, a competent Mortgage Agent will be able to let you know how much you could qualify for in all scenarios. For example, if you have 20% down, you may not qualify for your dream home with an A Lender, however, you may qualify for a mortgage on the same property with an A minus or B Lender, based on their lending criteria, although the interest rate will not be the same a with an A Lender.
Steps to Get Pre-Approved
Gather Financial Documents: Prepare your income statements, tax returns, and bank statements.
Choose a Mortgage Agent: Research Mortgage Agents who's schedule meet your availability.
Submit Your Application: Complete the lender's application process, providing all necessary documentation.
Choose the Right Mortgage Agent
The universe of lenders is vast. It is generally best to utilize a licensed Mortgage Agent to walk you through the process. The difference between a Mortgage Agent and going directly to the Bank is that the Banker gets paid regardless if your deal gets funded or not, while the Mortgage Agent only gets paid if your deal is funded. This means, your Agent should be more attentive and responsive to your questions in inquiries, in addition to making themselves available outside of standard business hours.
Your Mortgage Agent should be able to help you navigate:
The differences between insured / insurable / and conventional (uninsured) mortgages:
Typically the interest rate of insured / insurable mortgages are lower, however, the overall loan amount of insured mortgages are higher than that of conventional / insurable mortgages because the insurance fee is added to the mortgage.
Compare Rates:
A Mortgage Agent has access to active rate specials offered by lenders, which change on a weekly basis. Shopping with a Mortgage Agent saves your credit report multiple hard pulls from lenders.
Read Reviews: Look for customer reviews and testimonials to gauge Mortgage Agent's reputation.
Ask About Fees, Prepayment and Renewal Options: Inquire about any additional fees that may be associated with the mortgage. Lenders typically allow for 10-20% of the principal balance to repaid in one lump sum or larger periodic payments that do not exceed the maximum allowable penalty free payment. Renewal Options are very important to consider when you step into the space of alternative lenders or private lenders. At CornellMortgages.ca, we typically only use lenders with well defined renewal options to ensure that the borrower is not stuck when their residential mortgage comes up for renewal. They may come at a slightly higher interest rate, however, certainty of renewal (with no defaults) is priceless.
Understand Your Debt Service Ratios
In Canada, lenders look at two types of debt service ratios to evaluate a borrowers credit worthiness. The GDS Ratio (Gross Debt Ratio), looks at solely the applicants gross income over the Gross Debt associated to occupying a home, which would include the mortgage payment, property taxes, $100 for heating or the actual amount and 50% of the condominium fee. To qualify for the best rates, this ratio needs to be under 39%, under 35% is ideal.
The next hurdle is the TDS Ratio (Total Debt Ratio), which looks at all the items of the GDS, however, also includes other personal liabilities that a borrower may have such as credit cards, line of credits, negative cash flow on investment properties and so on. If it appears on your credit report, it will be included in your debt TDS ratio. The maximum allowable TDS Ratio is 44%, however, under 42% is ideal. A lower Det Servicing Ratio indicates that you have a manageable level of debt.
Ideal Ratios
While we now understand the addition to the TDS Ratio, compared to the GDS Ratio, the following rules of thumbs are good to follow for both:
Below 35%: Generally considered a good ratio for mortgage approval.
Between 36% and 43%: May still qualify, but lenders may scrutinize your application more closely and look for additional liquidity from the borrower.
Above 45%: Often seen as risky, making approval more challenging. While there are lenders that allow for TDS over 60%, the interest rate is higher to reflect the risks associated with this mortgage.
Be Prepared for Documentation
Lenders require real documentation to assess your financial situation. Being organized can speed up the approval process. While there are lenders that do not require any income verification documents, their interest rates are higher to reflect the risk and their total loan to value ratios are typically capped at 75%. Here’s a checklist of common documents you may need:
Proof of Income: Pay stubs, year end T4's, T1 General; T2 General.
Bank Statements: 6 to 12 months of the most recent statements showing account activity.
Employment Verification: A letter from your employer confirming your job status and income.
Two Pieces of ID: Pursuant to FSRA regulations, for an application to be considered compliant, the Mortgage Agent must view two pieces of identification from all borrowers.
Miscellaneous Items to Prepare: Where applicable, it is best to have any of the following prepared, if: Final property tax bill, most recent mortgage statement, and an MLS listing of the property.
Maintain Employment Stability
Lenders prefer borrowers with stable employment histories, which generally means at least two years of consecutive employment. If you’re considering changing jobs, it may be wise to wait until after your mortgage is approved and funded. Here are some tips to maintain employment stability:
Stay in Your Current Job: until after closing to avoid disappointment.
Communicate Changes: If you must change jobs, inform your lender immediately to avoid complications. This job should be in the same field to avoid disappointments.
Avoid Major Financial Changes
During the mortgage application process, avoid making significant financial changes that could impact your approval. Here are some actions to steer clear of:
Don’t Open New Credit Accounts: New credit inquiries can lower your credit score.
Avoid Large Purchases: Buying a new car or making other large purchases can affect your Debt Ratios.
Don’t Change Your Financial Situation: Avoid changing banks or moving large sums of money without notifying your lender. If you have questions, check with your Mortgage Agent about the best course of action.
Consider Registered Accounts to Accelerate your Home Savings
If you’re a first-time homebuyer, there are some registered accounts that will help you save towards home ownership and save on taxes or receive an income tax rebate.
or have a lower income, consider government-backed mortgage programs. These can offer benefits such as lower down payments and more flexible credit requirements. Some popular options include:
Investment Based Tax Savings:
TFSA: The Tax Free Savings Account - TFSA - is a registered investment accounts that allows the account holder to grow their investments without paying capital gains tax the growth in their investment. Please speak to your financial advisor about investing in your TFSA. However, as of 2025, the Lifetime Contribution Limit on a TFSA is $102,000, and the annual contribution limit is $7,000 for 2025. You maximize the benefit of your TFSA the longer that it is opened. If your TFSA was open of 14 years, and you never made a contribution, you will be able to contribute $102,000 in the current year. The maximum annual limit, is the amount a TFSA account holder may contribute if they are at their life time limit. There are many rules related to a TFSA. Check this out for more details.
In short, a TFSA helps you save for a home quicker by avoiding paying capital gains taxes. Low risks investments such as GIC's are considered ideal for short term home ownership planning. This is not investment advise.
Income Tax Rebate Based Savings:
Similarly to the TFSA, the following registered accounts allow investable assets to be held within them, however, they function very differently from a first-time homebuyer prospective.
FHSA (First Home Savings Account): If you are considering home ownership, you need to open an FHSA, yesterday. Yes, it is that important. The FHSA is the perfect blend between and RSP and and the TFSA for First Time Homeownership. in 2025, the Lifetime limit of the FHSA is $40,000 and the 2025 Limit is $8,000. Like the TFSA, investment growth within an FHSA is tax free, however, like and RSP, contributions into an FHSA are tax deductible and these funds are restricted.
Unlike an TFSA, withdrawals out of an FHSA are only meant to occur in the year you are to purchase a home. These accounts are not general savings / chequing accounts meant for daily use.
As such, if you plan to buy a home, open an FHSA, however, do not contribute money into this account until you know you want to buyer and will buy a home within the next 10-15 years.
A great strategy related to a FHSA is to save money in your TFSA, while opening an FHSA. As your FHSA is open, your lifetime limit increases at every year end. When house savings becomes important, move your investable assets from your TFSA into your FHSA to the maximum limit. This will maximize your tax rebate in the following year allowing you to further increase your home savings and available cash for closing costs in the year of purchasing. Mortgage planning made easy at Cornellmortgages.ca
Withdrawals for homeownership from a FHSA do not need to be repaid, unlike the HBP that we will talk about next.
RSP and the HBP (Home Buyers' Plan): The RSP is a registered account for retirement savings. The HBP allows for a withdrawal of up to $60,000 per spouse, so $120,000 per couple to be used towards buying their first home.
The HBP must be repaid in not less than equal installments of the amount withdrawn over 15 years. Assuming $60,000 was withdrawn under the HBP, $4,000 must be contributed towards the RSP each year or the same/difference of repayment will be added to the borrowers income as taxable income in a future tax year. Please consult with a tax expert for your personal situation.
In theory, the Income Tax Rebate Based savings programs aim to give a First Time Home Buyer access to at least $100,000 for an individual or $200,000 for a couple to be used towards acquiring their first home. This has a drastic impact in affordability. A couple with $200,000 down, would need a household income of $175,000 to qualify for a purchase price of $1,000,000. Whereas, an individual with only $100,000 down, would require an income of at least $195,000 for the same purchase price to qualify for a mortgage.
In the above scenario, we used an interest rate of 3.89%, qualifying at the stress test. All things being considered, the couple with $200,000 down would have a lot more buying power and home ownership stability than the individual with $100,000. Adding in additional savings from the TFSA, a first time home buyer could have enough start up capital to buy a home and get used to the expenses of home ownership comfortably.
Work with a Real Estate Agent
A knowledgeable real estate agent can be an invaluable resource during the homebuying process. They can help you navigate the market, negotiate offers, and provide insights into local neighborhoods. Here’s how to find the right agent:
Ask for Recommendations: Seek referrals from friends or family who have recently purchased homes.
Research Online: Look for agents with positive reviews and a strong online presence.
Interview Candidates: Meet with potential agents to discuss your needs and gauge their expertise.
Don't Stress, Enjoy the Process
Keeping your debt low going into your first home purchase leaves a lot of room for things to go wrong before they are uncontrollable. Shopping for the best interest rate may not be as important as ensuring that you get qualified with an Prime Lender. Delays on getting your income document information to your Mortgage Agent, may cause delays in your Agent getting you the best rates due to clerical issues. Do not rate shop by yourself, let your Agent send you offerings from 3+ lenders to ensure they are doing something. However, if your qualification is tight, do not play hard ball just to because.
Final Thoughts
Securing a residential mortgage can be a complex process, but with the right preparation and knowledge, you can improve your chances of approval. Focus on enhancing your credit score, saving for a down payment, and understanding your financial situation. By following these tips, you’ll be well on your way to homeownership.
Remember, the journey to buying a home is not just about the lowest interest rate, it is about getting the right mortgage, for the right place where you can create lasting memories. Take your time, do your research, and don’t hesitate to seek help from professionals along the way. Happy house hunting!
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