Can I Get a Mortgage with Debt in Canada?

Debt is a reality for most Canadians. Whether it’s student loans, car payments, or credit cards, carrying some debt is common—but it often raises one big question: Can I still get a mortgage if I owe money?

The short answer: Yes, you can get a mortgage with debt in Canada—but it depends on how much debt you have and how well you manage it.

Many first-time buyers assume they need to be completely debt-free before applying for a mortgage. That’s not true. But lenders will look closely at your credit profile, income, and existing financial obligations before making a decision.

In this post, we’ll break down exactly how debt impacts your mortgage approval, what lenders evaluate, and what steps you can take to improve your chances.

If you’re serious about buying a home, this guide will help you prepare with clarity and confidence.

What Do Mortgage Lenders Look At When You Have Debt?

Before lenders decide how much they’re willing to lend you—or if they’ll lend to you at all—they examine your overall financial health. Here’s what they focus on most:

1. Your Credit Score and History

Your credit score is a major factor. In Canada:

A score of 680 or higher is considered excellent.

Scores between 600–679 are fair, and you may still qualify with a strong application.

Scores below 600 typically require alternative lenders or larger down payments.

Lenders also look beyond the number. They’ll assess how long you've had credit, your payment history, and whether you’ve had late or missed payments, collections, or defaults.

📌 Tip: Check your credit score for free at Equifax Canada or TransUnion.

2. Debt-to-Income Ratio (DTI)

Your Debt-to-Income (DTI) ratio compares your monthly debt payments to your gross monthly income. It gives lenders an idea of how much financial wiggle room you have after paying your obligations.

Here’s how it’s calculated:

Ideal DTI: Under 42%

A lower DTI improves your chances of getting approved for a mortgage.

3. GDS and TDS Ratios

These two government-backed guidelines help determine mortgage affordability:

Gross Debt Service Ratio (GDS): The percentage of your income needed to cover housing costs (mortgage, taxes, heating, and 50% of condo fees).

Threshold: Should be ≤ 35% of your gross monthly income.

Total Debt Service Ratio (TDS): This includes all housing costs plus other debts like student loans, car payments, and credit card minimums.

Threshold: Should be ≤ 42%.

Lenders use GDS and TDS to ensure you’re not taking on more than you can reasonably afford. If your TDS is too high, your mortgage application may be declined—or you might be approved for a smaller amount. (source)

4. Employment History and Income Stability

Reliable income matters. Most lenders want to see:

At least 2 years of stable employment (especially for salaried positions)

Proof of consistent income (pay stubs, tax returns, or notices of assessment)

For self-employed applicants, at least 2 years of business income records

High income can help offset a higher debt load. Irregular or new income sources may raise red flags for lenders.

How Do Different Types of Debt Affect Mortgage Approval?

Lenders consider the type of debt you carry—not just the total amount. Some debts carry more weight in the approval process.

Credit Card Debt

High-interest and revolving

Payments vary depending on your balance

Can indicate poor financial management if the utilization ratio is above 30%

Directly affects your credit score and TDS

Student Loans

Often lower interest and long-term

Monthly payment is factored into your TDS

Deferred payments may still be counted by some lenders—typically 1% of the total loan amount is used as an estimated payment

Car Loans or Leases

Fixed monthly payment obligations

Reduce your affordability by adding to your TDS

Large car loans can significantly reduce the amount of mortgage you qualify for

Lines of Credit

Treated like revolving debt (similar to credit cards)

Lenders typically include 3% of the balance as a monthly obligation

Home equity lines (HELOCs) are treated differently—since they’re secured, some lenders may be more lenient

Can You Get a Mortgage in Canada with Bad Credit and Debt?

Yes, but it’s more complicated—and more expensive.

Borrowers with poor credit (under 600) and existing debt may still get approved through B-lenders or private mortgage lenders. These lenders take on higher-risk borrowers, but they charge:

Higher interest rates (sometimes 6–10%)

Larger down payments (often 20–30%)

Additional fees (broker, lender, legal)

If this is your only option, it can still help you get into the market—just be prepared to refinance later with a traditional lender once your credit improves.

How to Improve Your Chances of Getting a Mortgage with Debt

You don’t need to eliminate all your debt before applying. But you do need to show you’re managing it well. Here’s how to put yourself in a stronger position:

1. Pay Down High-Interest Debts First

Focus on credit cards and unsecured loans. These carry the most weight in TDS calculations and affect your credit score more than fixed loans.

2. Avoid Taking On New Debt

Hold off on financing a car, applying for new credit cards, or increasing existing credit limits before your mortgage closes. Lenders will check your credit again before final approval.

3. Check Your Credit Report for Errors

Mistakes happen. Dispute any inaccuracies like outdated accounts, duplicate debts, or incorrectly reported late payments.

4. Increase Your Income or Add a Co-Borrower

Taking on a second job, freelance work, or adding a spouse or parent as a co-applicant can improve your income ratios.

5. Save for a Larger Down Payment

A 20% down payment reduces the lender’s risk and may bypass mortgage insurance (if the property value is under $1M).

Getting a Mortgage with Debt in Canada Is Possible—Here’s What Matters Most

You can qualify for a mortgage in Canada even if you have existing debt. What lenders want to see is that you’re responsible with credit, not maxed out, and earning enough to cover your payments comfortably.

If you:

Know your credit score

Understand your debt-to-income ratio

Make consistent payments on time

Avoid new debt before applying

…then your chances of mortgage approval—even with debt—are a lot better than you think.

Don’t wait until you’re debt-free to start planning. Start preparing your finances today, and you’ll be ready when the right home comes along.

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