Lending institutions, and Canada Mortgage & Housing Corp (CMHC), or GE Capital (GEC), will allow a family to utilize up to 32% of gross (pre-tax) income to pay for the house. This calculation is called "gross debt service ratio" or GDS for short. The expenses within this guideline are: principal & interest on the mortgage (the payment), property taxes, and heating cost. As an example, let us suppose the Smith Family earn $5,000 monthly, before income tax. This income will allow the family up to $1600 per month to pay for the house (that’s 32% of $5000).

Since most Canadians have other debts, these are allowed provided the payments under these alternate debts, coupled with the house payments do not exceed 40% of the family income. In other words, if you buy to the maximum of your allowable GDS ratio, alternate debt payments must not exceed 8% of your gross income (32% GDS + 8% = 40%). This alternate debt payment coupled with the house payment is called the "total debt service ratio" or TDS for short. If the alternate debt causes the overall debt ratio to exceed 40%, then the alternate debt must be restructured in order to bring down the ratio, or buy a lesser house. If there is no appreciable alternate debt, it does not mean your house payment load can exceed 32%.

There is basically four different types of incomes in Canada, these are: salary, salary plus commission, commission, and self-employed. You must be able to prove the income required to qualify. Salaried individuals can prove income by way of a letter from their employer, and a recent pay-stub. Salary plus commission individuals may utilize only the salary portion, unless averaging the "taxable income" line from the last three years Revenue Canada Assessment Notices will give a greater amount than salary alone. Commissioned individuals must prove income by averaging the "taxable income"line from the last three years Revenue Canada Assessment Notices. Self employed individuals face the most difficult challenge. This category is scrutinized beyond the norm. It may very well mean that an increased down payment be necessary for approval. Again, three years worth of Revenue Canada Assessment Notices "taxable income" must be averaged.

The minimum required down payment in Canada is 5% of the property price, plus you must prove you have at least an additional 1.5% in reserve to pay for closing costs. The down payment can be cash in the bank, RRSPs, a gift from an immediate family member, borrowing against a proven asset. If your down payment is cash, the lender will require you to prove that you have had the cash in the bank for at least 90 days. If it is your RRSP that will fund your down payment, then you must apply to your RRSP Trustee to release the funds to your lawyer. If you have not owned a residence in the past 4 years, you can apply to withdraw up to $20,000 from your RRSP, tax-free (certain conditions apply). Should your down payment be from a gift, a letter from the gift giver is mandatory, and possibly a copy of the gift cheque. The letter must attest that these funds are indeed a gift and that the gift need not be repaid in any way. The gifted funds must be in your bank account at least 15 days prior to funding. The asset borrowing is very difficult. The proven asset cannot be a car, or furniture, or jewelry. However, should you apply for a loan in January, offer your car for security, take the money and place it in your bank account for 120 days. Make an offer to buy a house in June or July, declare the loan on your application, the loan now becomes secondary to the cash in your bank since you can show that you had the cash for longer than 90 days. Same thing goes for furniture, jewelry, stocks, etc.

If you are buying a duplex, or a triplex, the amount of the minimum down payment will increase to 7.5% or 10% respectively.

Your existing credit must be impeccable for at least the last year, some minor blemishes are allowed prior to that time period. For those who have had the misfortune of declaring personal bankruptcy, or a proposal under the "Bankruptcy Act", minimum down payments will not work for at least two years, and most likely, four years. It does not mean you can’t buy, it means the down payment portion must be increased, or the rate of interest will be affected. You should get your credit report at least yearly to make sure mistakes are not being applied to your credit rating. If you are shopping around for a mortgage, every time you give a lending institution or mortgage broker permission to draw a credit report on you, it will lower your point score on the credit bureau. You should decide who will get your business prior to giving anybody permission to check. Of course, should you deal through a mortgage broker (like Mortgage Matters), you are automatically checking with virtually every bank, trust company, mortgage company and life insurance company that offers discounted mortgage rates. Most mortgage brokers do not charge a fee, on "A" business.