Can You Get a Mortgage with Debt in Canada?

Buying a house has become a challenging milestone; nevertheless, it is a top priority for many younger people. While there is a certain amount of freedom in renting, nothing provides emotional and financial security quite like owning a home.

Many aspiring buyers wonder whether they’ll ever be able to qualify for a mortgage, especially if their credit history is less than established. In this post, we’ll answer some of the most common questions we get from the younger generation who are wondering if they can get a mortgage with debt in Canada.

Our Homebuyer Handbook can help you overcome many challenges in the market today. Have you downloaded your copy yet? If not, you can get it right here.

How to Qualify for a Mortgage

On paper, getting a mortgage seems simple enough. It’s always a good idea to visit a bank or mortgage broker to see where you stand. Ideally, you’ll want to get a pre-approval so you have an accurate estimate of how much funding a lender will be willing to provide.

Once you have that Certificate of Pre-Approval, you can start visiting potential homes and are in an excellent position to place offers. The trick is in getting to this point, and life in the real world isn’t always so neat and tidy.

Housing prices aren’t the only thing that has risen over the years; the cost of tuition has also soared. Recent graduates often wonder: Does OSAP affect mortgage eligibility? Can you get a mortgage with student loans that you are still paying off?

The bad news is, yes, all debt can impact your chances of buying a house, including student loans. However, who in this day and age doesn’t have some form of debt that they are paying off? If you are diligent about making all payments on time and are putting money aside into a savings account each month, your dreams of homeownership can still be on the table.

With a plan, buying a house becomes far more straightforward. The posts below can help you get the ball rolling:

What Happens if Your Credit Is Poor?

There is a difference between having little credit history and bad credit. Both can affect a lender’s decision on whether to approve you and for how much you can get as a mortgage with debt in Canada

Young buyers or new Canadians may simply not have enough history to show their ability to pay their mortgage on time. That’s why it’s important to start small and pay off all bills each month. The longer you demonstrate positive financial habits, the stronger your ability to borrow will become.

Bad credit is worse because it suggests that you have run into trouble at some point. Often, it’s through no fault of your own from circumstances you can’t control, such as an illness or job loss.

Can you buy a home with bad credit, and what is bad credit for a mortgage? Credit scores in Canada range from 300 to 900.

Anything above 760 would be considered excellent, and you would likely encounter no difficulty in obtaining a mortgage based on your income.
A rating below 680 is a different story. Now, you’re considered high risk, and a bank may not approve you, or approve an amount that is insufficient for the home you want.

If your credit history leaves room for improvement, you still have options. You can work to improve your score before applying for a mortgage. This is an ideal path when your home purchase is a few years away.

Turning to B-lenders or alternative lenders is another option if you want to get into the market sooner. This is getting a little beyond the scope of this post, but it’s always nice to know that the possibilities exist. A mortgage broker can allow you to explore the rates and terms through various lenders.

Wondering where to buy your next home? The posts below will give you something to think about:

Capitalize on All Resources

First-time buyers have several resources available to help make it easier to get into the market. If you haven’t already, the government programs below are well worth looking into.

First Home Savings Account

This federal program was introduced in 2023 to allow residents 18 and older to start saving $8,000 per year in a tax-sheltered investment, all for the purpose of buying their first home. There is a lifetime cap of $40,000, but all interest and dividends can also go toward your purchase. The potential can really add up if you start a few years before you intend to buy your home.

Home Buyer’s Plan

The Home Buyer’s Plan is similar to the First Home Savings Account. The difference is that you can use any registered investment account. Under the newest guidelines, you can withdraw up to $60,000 without tax penalty to purchase your home. If buying with a partner who is also a first-time buyer, you can both use the plan and double its effect. Unlike the First Home Savings Account, you will have to repay those funds within 15 years to maintain the tax-free benefit.

Land Transfer Tax Rebate

The land transfer tax is the most cumbersome closing cost when buying a home in Ontario. Fortunately, first-time buyers have some relief as the provincial government offers an instant $4,000 rebate.

A full-service real estate team can help you assess your strengths and weaknesses, and help you find a home that suits your needs and budget. Whatever your goals are, our experienced Georgetown real estate agents can help you create an unbeatable strategy.