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Getting approved for a mortgage in Canada is not impossible even though interest rates are going up, and housing prices are still anything but low.

In Toronto, for instance, the average sold price of a home dropped to $1,051,000 in December 2022.

Unless you’re rolling in cash, that’s a lot of debt to finance with a loan. Sure, you can pay a small down payment, but a lot goes into qualifying for a mortgage.

Lenders look at a number of factors. Aside from a sizeable down payment and a solid income, they also look at your credit score.  

Let’s explain the minimum credit score you need for a mortgage in Canada.

Credit Score For A Mortgage in Canada Requires You To Know Your Credit Score

If you want to qualify for a mortgage, you need to know your credit score. You can get it for free from places like Compare Hub or you can pay for it from Equifax, or TransUnion.

A lot of banks and third-party companies offer you free credit scores. Just know that companies can calculate your credit score differently. That is why you might have several different credit score. However, Equifax and TransUnion are the source of the most reliable scores. Compare Hub, however, does give you your Equifax score for free.

What Are The Credit Score Needed For A Mortgage In Canada 2023?

Going into 2023, the minimum credit score needed to get approved for a mortgage is 640. Although it would be more accurate to say what credit score range you need. Anywhere between 620 and 680 would be considered a minimum, depending on the lender. 

What Can Impact The Minimum Credit Score Needed For A Mortgage in Canada? 

Your debt and your income have some influence. A borrower with a high income and low debt amount might be able to get away with a slightly lower credit score than a borrower with a lower income and lots of debt.

Similarly, the loan amount required and the amortization period also plays a role in the credit score required for mortgage approval in Canada. For instance, a higher loan amount is riskier for lenders, who may, in turn, require a higher credit score. 

Borrowers will also have to undergo a stress test during the mortgage approval process. In order for applicants to qualify for a home loan in Canada, they will have to prove to their lender that they’re capable of affording their mortgage payments into the future if interest rates rise.

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How Your Credit Scores Can Impact Your Mortgage 

760+Credit scores above 760 are considered excellent. With excellent credit, you can expect to qualify more easily and access the best rates. 
725–759Credit scores between 725 – 759 are considered very good. Similar to excellent credit, you can expect easy approvals and access to the lowest rates. 
660–724Credit scores between 660 – 724 are considered good. Here too, you should have no trouble qualifying due to your credit, however, you may not get the same rates as those with very good or excellent credit.
560–659Credit scores between 560 – 659 are considered fair. The minimum required credit score for a mortgage falls between the fair and good credit range of 620 – 680. If your credit score is below 620, you may find it hard to qualify for a mortgage with a traditional bank. You’ll also likely be unable to qualify for the best rates available on the market.
300–559Credit scores between 300 – 559 are considered poor. With poor credit, you’d be considered a high-risk borrower. You’ll likely need to apply with a private mortgage lender to get a mortgage and you’ll be charged higher interest rates. 

How Do Lenders Decide To Approve You For A Mortgage? 

As we mentioned, credit scores are not the only factor lenders examine before they approve or decline your application.  Lenders will usually examine your income, your employment record, your general expenses and your current debts. Your lender might look at the following: 

Debt Management 

Mortgage lenders also want to see a favourable history of debt management on your part. This means that on top of your credit scores, lenders are also going to pull a copy of your credit report to examine your payment record.

So, even if you have a credit score above the 600 mark, you might still have red flags for a lender. A history of debt and payment problems can raise alarm and cause them to reconsider your level of creditworthiness.

Mortgage Stress Test

This is where the new stress test will come into play for all potential borrowers. In order to qualify, you’ll need to prove to your lender that you’ll be able to afford your mortgage payments in the years to come.

To pass the stress test, you’ll need to qualify for a mortgage at 2% plus the mortgage interest rate you qualify for or 5.25%, whichever is higher. 

GDS Ratio

Besides your credit score, the mortgage lenders will calculate your monthly housing costs, also known as your gross debt service ratio. Generally, you’ll need a GDS ratio of 39% to qualify for a mortgage. 

Your GDS ratio is calculated by adding all your monthly housing costs and dividing it by your gross monthly income. Housing costs may include your:

  • Potential mortgage payments
  • Potential property taxes
  • Potential cost of heating and other utilities
  • 50% of condominium fees (if you’re buying a condo instead of a house)

TDS Ratio

This will be followed by an examination of your overall debt load, also known as your total debt service ratio. To qualify, you need a ratio of 44% or below. Your TDS ratio may include your:

  • Credit card payments
  • Car payments
  • Lines of credit
  • Spousal or child support payments
  • Student loans
  • Other debt

Should You Get A Mortgage Pre-Approval?

A good way to know if you’ll receive mortgage approval before you actually apply is to get pre-approved. Most most potential homeowners will apply for pre-approval 60-120 days before they plan to purchase a home.

Your lender examines your finances to determine the maximum amount they would lend you, as well as the interest rate they would approve you for. A pre-approval will also provide you with a better idea of what your future mortgage payments will look like, as well as how your finances will be affected by your down payment, closing, moving, and future maintenance costs.

What Do You Need To Get A Mortgage Pre-Approval? 

For the purpose of the pre-approval process, you’ll need to provide your lenders with various documents, such as:

  • Proof of identity and residency
  • Proof of employment (salary/hourly rate, time and position at the company, etc.)
  • If self-employed, Notices of Assessment from the Canada Revenue Agency from the past two years
  • Proof that your finances are suitable enough to afford future payments
  • Information pertaining to your assets (vehicle, other property, etc.)
  • Information pertaining to your current debts and other financial obligations

Does A Mortgage Pre-Approval Guarantee Mortgage Approval? 

One important thing to understand here is that the pre-approval is optional and does not actually guarantee that you’ll be approved for the amount you’re pre-approved for in the first place. In fact, even if you’re pre-approved, you still might not be officially approved for a mortgage when you apply. The pre-approval process is simply a way of understanding the debt you’ll be taking on and determining whether you’ll be able to handle the financial strain a mortgage puts you under. It’s also a way of knowing your true price range and showing your lender that you are serious about buying a home.

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Can You Get A Mortgage With Low Credit?

The minimum credit scores required to get approved for a mortgage mentioned above usually apply to conventional lenders, such as big banks. These traditional lenders are usually quite stringent about their mortgage approval requirements, including the credit scores needed for mortgage approval.

Thankfully, there are options for bad credit borrowers who are looking for a mortgage to finance a home purchase. Credit unions, trust companies, and subprime lenders are potential sources for mortgages for borrowers who can’t qualify with their banks because of their sub-par credit scores. These sources often deal with people who may be viewed as risky to conventional lenders.

Bad Credit Mortgage Lender Risks

It should be noted that if you do plan to apply for a mortgage with one of these lenders with bad credit scores, you will likely pay a higher interest rate than you would if you had higher credit scores and applied with a conventional lender.

That’s why it’s best to consider taking the time to improve your credit score before applying for a mortgage. That way you’ll have an easier time getting approved for a home loan and clinch a lower rate, which will make your mortgage less expensive.

What Qualifies As A Good Credit Score?

For those who aren’t as familiar with their credit scores, it’s a three-digit number that encompasses all your credit-related activity into one cumulative average. In Canada, credit scores range anywhere from 300 to 900. The higher your credit scores, the better your chances are of getting approved for various loans and other credit products. Generally speaking, credit scores of 660 and above are considered good and means that you are a low default risk and are likely to make your payments on time. 

How To Improve Your Credit Scores For A Home Loan?

It’s clear that good credit scores are one of the more important factors when trying to gain mortgage approval. It’s also a factor in calculating the interest rate you’ll be given. A high credit score can also save you thousands of dollars over the course of your amortization. Therefore, it’s best to get your credit scores in the best shape you can manage before you apply with any lender. Here are a few simple things you can try that may help improve your credit scores.

  • Paying bills on time and in full
  • Do not carry a large amount of unpaid debt
  • Use no more than 30% of your available credit card limit
  • Don’t apply for too much new credit in a short amount of time
  • Review a copy of your credit report for mistakes or signs of identity theft
  • Consider credit building products like a secured credit card

Minimum Mortgage Credit Score FAQs

Can I get a mortgage with a 600 credit score? 

For most lenders, you’ll need credit scores between 620 and 680  as a minimum to a mortgage. That being said, you may still qualify for a mortgage with a 600 credit score with certain private mortgage lenders. However, they often charge very high-interest rates which can drastically increase the cost of your mortgage. 

How much of a home loan can I qualify for with good credit?

The amount you qualify for depends on how much you can afford. Lenders calculate this based on two main ratios: the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio. It takes into consideration your income, debt and housing costs

Can I get a mortgage with bad credit in Canada?

Yes, you can still qualify for a mortgage with bad credit in Canada. However, it’s unlikely you’ll be able to get a mortgage with a traditional lender, you’ll need to apply with a private mortgage lender as they have more flexible requirements. While these lenders often accept borrowers with all types of credit, they also charge much higher interest rates. When you are choosing your mortgage terms, make certain that you know your payment frequency and any penalties you will have if you break the loan.

Will a mortgage pre-approval affect my credit? 

Mortgage pre-approvals involve your lender checking your credit. When they do it results in a “hard inquiry” which can negatively impact your credit. Thankfully, multiple credit checks from mortgage lenders within a short period of time (~7- 45 days) are usually considered as a single hard inquiry. 

I have no credit history, can I still get a mortgage? 

If you’re a new immigrant to Canada, you may have no credit history or at most a thin credit profile. In such circumstances, you may still be eligible for a mortgage with big banks as some offer special mortgage programs for new immigrants. If you’re unable to qualify with a big bank, you can look into private mortgage lenders, many accept borrowers with bad or no credit history. 

Bottom Line

If your credit scores are below your lender’s standards, it’s possible that your first mortgage application won’t be approved but, don’t give up right away. You can improve your chances by improving your credit scores as much as you can before applying for a mortgage with any lender. This will not only increase your chances of approval but doing so will also help you gain access to better interest rates. 

Remember, when applying for a mortgage make sure to do some research in advance to find the best lender for your specific financial needs. Loans Canada can help match you with a third-party licenced mortgage specialist that meets your needs, regardless of your credit.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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