Getting approved for a higher mortgage amount can make the difference between buying your ideal home and feeling priced out of the market. Many borrowers are surprised to learn that it is not just income that matters. Lenders look at debt levels, credit history, down payment size, employment stability and other factors when determining how much you can borrow. In this guide, we break down the key components that affect your approval amount and practical steps you can take to improve your chances of qualifying for a larger mortgage in Canada.
In this article, we’ll explore actionable tips for both self-employed and traditionally employed individuals to increase their mortgage approval amount while staying within financial comfort.
Factors That Determine Mortgage Approval Amount
Lenders assess several key factors to decide how much mortgage they’re willing to approve. These include:
- Income: Your earnings (whether salaried or self-employed) demonstrate your ability to repay the loan.
- Debt-to-Income Ratio (DTI): Lenders compare your monthly debt obligations to your income. Lower ratios improve your chances.
- Credit Score: A higher credit score can qualify you for better rates and terms, increasing affordability.
- Down Payment: A larger down payment can reduce the amount you need to borrow, potentially boosting approval chances.
- Employment History: Stable employment reassures lenders of your financial stability.
Use the mortgage affordability calculator to see how changes to your profile affect your approval.
For example, if your gross annual income is $100,000, a lender may cap your monthly housing costs (GDS) at roughly $3,020 based on a 32 percent guideline. This means your mortgage payment, property tax and heating cannot exceed that amount if you want a higher approval.
Tips for Self-Employed Borrowers
Self-employed individuals face unique challenges in mortgage approval, as lenders require extra proof of consistent income. Here’s how to strengthen your case:
1. Organize Your Financial Documents
Prepare your tax returns, bank statements, and proof of business income for the last two to three years. Lenders need to see consistent earnings over time.
2. Separate Personal and Business Finances
Keep your personal and business accounts separate to clearly demonstrate your income and expenses.
3. Increase Your Declared Income
If possible, reduce the deductions on your tax returns to show a higher taxable income. While this might increase your taxes, it strengthens your mortgage application.
4. Build a Larger Down Payment
A significant down payment reduces the lender’s risk and makes you a more appealing borrower.
5. Consider a Co-Signer
If your income is deemed insufficient, adding a co-signer with a stable income can increase your approval amount.
Tips for Traditionally Employed Borrowers
For those with regular employment, here’s how to optimize your mortgage approval amount:
1. Pay Down Existing Debt
Reducing your credit card balances, loans, or other debts lowers your debt-to-income ratio, freeing up more room for mortgage payments.
2. Increase Your Credit Score
Paying bills on time, keeping credit utilization low, and avoiding new debt inquiries can boost your score, qualifying you for better rates.
3. Save for a Bigger Down Payment
A larger down payment reduces the loan amount required, potentially increasing your approval.
4. Improve Your Income
If possible, negotiate a raise at work or take on a side hustle to boost your earnings and show additional income.
5. Opt for a Longer Amortization Period
Choosing a longer repayment period lowers monthly payments, which can increase the amount you’re approved for.
General Tips for All Borrowers
Whether you’re self-employed or traditionally employed, these strategies can help maximize your mortgage approval amount:
1. Shop Around for Lenders
Different lenders have different criteria and products. Mortgage brokers can help you find lenders that specialize in your circumstances, including self-employment.
2. Reduce Monthly Obligations
Cutting back on non-essential expenses, such as subscriptions or personal loans, can improve your debt-to-income ratio.
3. Use a Co-Borrower
If you’re buying with a partner, combining incomes can increase the amount you qualify for.
4. Build a Solid Financial Track Record
Lenders appreciate borrowers who demonstrate stability and responsibility through consistent savings, timely bill payments, and low debt levels.
5. Get Pre-Approved
A pre-approval not only gives you an idea of how much you can borrow but also shows sellers that you’re a serious buyer.
Common Mistakes to Avoid
- Ignoring Credit History: Late payments or maxing out credit cards can hurt your approval chances.
- Overextending Yourself: Borrowing more than you can comfortably afford may lead to financial strain.
- Making Large Purchases: Avoid big-ticket purchases before applying, as they can increase your debt load.
What Not to Do Before Applying
- Don’t open new credit right before applying
- Don’t make large purchases
- Don’t quit your job or reduce income
- Don’t co-sign on other loans
Final Thoughts
Increasing your mortgage approval amount often requires small changes that have a big impact. Improving your credit, lowering your debts, increasing your down payment and working with an experienced mortgage professional can make a meaningful difference. If you’re ready to explore your options and want a personalized plan, The Local Broker can help you navigate the process with transparency and expertise. Reach out today
Frequently Asked Questions – FAQ
Q: Can I get a higher mortgage approval with a co-signer?
A: Possibly, but lenders still assess total debt and income.
Q: How long does it take to improve my credit score?
A: Typically months, depending on your starting point.
Q: Does paying down debt help my approval?
A: Yes, lowering monthly obligations improves debt ratios.
