Key Factors That Impact the Mortgage Approval Process

The mortgage approval process can be an intimidating and confusing experience for many homebuyers. It involves a lot of paperwork, financial documentation, and waiting periods. 

However, understanding the key factors that impact the mortgage approval process can help make the experience less daunting and increase your chances of getting approved for a mortgage loan. 

The sections below discuss the most important factors that lenders consider when reviewing mortgage applications.

Credit Score

Lenders look at your credit score when reviewing your mortgage application. It’s a numerical representation of your creditworthiness and is based on your credit history. 

A higher credit score indicates that you’re a responsible borrower and are more likely to make your mortgage payments on time.

Lenders require at least 620 to approve a mortgage application. A higher credit score can increase your opportunity to get approval for a mortgage loan and help you qualify for better interest rates.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio evaluates how much of your monthly income is going toward paying off debt. This ratio is used by lenders to assess how much of your income is designated for debt repayment and how much is left over for mortgage payments.

They look for a DTI ratio of 43 percent or lower to approve a mortgage application. However, some lenders may be more lenient and may approve applications with a higher DTI ratio if the borrower has a higher credit score or a larger down payment.

Employment History

Lenders also look at your employment history when reviewing your mortgage application. They want to ensure that you have a stable source of income and that you’re likely to continue earning income in the future.

Lenders usually look for a two-year employment history but may make exceptions for borrowers who have recently changed jobs or are self-employed. In these cases, lenders may ask for additional documentation, such as tax returns or business financial statements, to verify income.

Down Payment

Your contribution to the purchase of your house is known as the down payment. Most lenders want a down payment of at least three percent of the home’s cost.

Making a bigger down payment can increase your chances of getting a home loan approved and enable you to acquire better interest rates.

Also, it reduces the amount you need to borrow, which can lower your monthly mortgage payments and the overall interest you pay for the loan.

Property Appraisal

Lenders want a property appraisal for the purpose of determining the value of the house you’re buying. An authorized appraiser performs the appraisal, which is based on the location, condition, and most recent sales prices of nearby houses that are comparable to the one being appraised.

If the appraisal falls below the purchase price, the lender may need a larger down payment or may completely reject the mortgage application.

When making an offer, it’s critical to have a realistic idea of the home’s value and be ready for a lower assessment.

Closing Costs

The fees incurred during the purchase of a home are known as closing costs and include things like attorney fees, title insurance, and appraisal fees. These costs can add up quickly and can range from 2 percent to 5 percent of the home’s purchase price.

Lenders usually require borrowers to have enough cash on hand to cover closing costs. However, some may allow borrowers to roll closing costs into their mortgage loan, which can increase the amount of the loan and the monthly mortgage payments.


By understanding the key factors that impact the mortgage approval process, you can position yourself for success and achieve your dream of homeownership. 

Working with a reputable lender and seeking the guidance of a mortgage professional can also streamline the process and ensure that you are making informed decisions throughout the process.

If you want to secure loans in Canada, don’t hesitate to check out 365 Loans Canada! We are a Canadian-owned and -operated website that helps Canadians get the funding they need with low-interest rates and flexible terms. 

We endeavour to provide you with the information and access to the best loan options on the market. Contact us today to learn more!

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