This article was originally published in August 2016, and was updated on November 14, 2023.
You’ve got your mortgage pre-approval in hand, and you’re ready to embark on your house hunt – but then you find a home that pushes the limits of the loan you’ve been offered.
In today’s steep interest rate environment, getting a bigger mortgage can be challenging, especially for first-time homebuyers. Post-COVID, borrowing conditions have tightened up, given the Bank of Canada has increased its trend-setting interest rate a whopping 10 times since March 2022, to a total of 5%. That means today’s mortgage borrower can expect the lowest fixed and variable rates in the 6 - 7% range… and to be stress tested around the 8 - 9% mark.
As a result, borrowers are needing to make larger down payments than they were pre-pandemic, to qualify for the same size of mortgage. But if you’re determined – and have the financial means – to increase the amount you've been pre-approved for, there are some steps you can take. Let’s review your options.
1. Make a larger down payment
One of the most important factors in how big of a mortgage you can be approved for is the size of your down payment. In Canada, every property purchase requires a minimum cash down payment, ranging from 5% to 20% of the purchase price. If you want to buy a more expensive home, it will require a larger minimum down payment. While it can be tough to save more money before you buy a home, this is one factor that’s within your control, for the most part.
Let’s look at this in a little more detail. Here are the minimum down payment rules in Canada:
- For homes priced under $500,000 a 5% down payment is required.
- Homes costing more than $500,000 but less than $1 million require 5% of the first $500,000 plus 10% of the remaining purchase price.
- For homes that are $1 million or more, the minimum down payment is a flat 20%.
If you can make a larger down payment, you’ll be able to get a larger mortgage and spend more on a home. For example, a $500,000 home only requires a 5% minimum down payment of $25,000. However, on a $800,000 home, your minimum down payment will need to be $55,000, which is an effective rate of 6.9%.
To understand more about how increasing your down payment will affect your mortgage affordability, have a look at the Ratehub.ca Down Payment Calculator. This lets you try out different purchase scenarios and understand how much your down payment will need to be in each one.
2. Increase your income
If you find that your preferred mortgage pre-approval provider isn’t willing to give you the full loan amount you need, you may need to think about increasing your income. In fact, you can be up-front with your mortgage pre-approval provider and ask them what level of income you’ll need for the mortgage you want.
Of course, increasing your income isn’t a quick or easy task, and switching careers probably isn’t on your to-do list. Nevertheless, increasing your income will directly increase the amount of money that you’re likely to be pre-approved for. Here are a couple of options you might want to consider:
- Negotiate for a higher salary with your current employer. This is the best possible option, as it preserves your current tenure, which mortgage providers also look at. If you’re not comfortable with negotiation, it could be worth looking into taking an online course - there are several around.
- Find a job that pays better. It’s possible that you might be being paid less than your market value, especially if you’ve been in the same role for some time. The downside of this is that you’ll probably need to work at your new job for a while before applying for another mortgage – lenders typically like to see two-years’ worth of income and employment history at the mortgage qualification stage.
- Find other sources of income. Whether it’s someone in your household increasing their working hours, renting out your spare room or taking on a second job, a new source of income will increase the mortgage size you can be approved for.
As an alternative to earning more money, you can try applying for the mortgage with your partner or a co-signer (for example, your parents) who also has a steady source of income. Doing so will help you get a larger mortgage. Of course, if you do find ways to increase your income, make sure that these income sources are stable and reliable.
3. Pay off your existing debts
In addition to your income, your mortgage provider will look at your income-to-debt ratios to determine how large a mortgage they will approve you for. For many people, this can be the limiting factor in mortgage affordability, even more so than the down payment.
To improve your debt-to-income ratio and get pre-approved for a larger mortgage, you’ll want to pay off any existing debts that you have. This includes credit card debts, other mortgages, auto or boat loans, student loans as well as any other lines of credit that require regular repayments.
4. Find a lower mortgage rate
Getting the best mortgage rate will result in a lower regular mortgage payment, which will reduce the overall cost of homeownership. Finding a lender who’ll approve you for a lower mortgage rate will let you put a larger portion of your payments towards the principal, rather than the interest.
There are several ways to find a lower mortgage rate (including point 5 of this list) but your best bet is to compare all of the products on the market, from a variety of lenders. Different mortgage providers are comfortable with different levels of risk and profit margins, so they may offer vastly different mortgage rates in the same market. Not comparing rates before you get pre-approved could lead to you paying thousands more each year!
It’s also important to consider the terms and conditions of your mortgage and mortgage rate. Depending on your circumstances and the current market conditions, a 5-year fixed mortgage rate and a 3-year variable mortgage rate could each wind up costing very different amounts. As such, it’s important that you know the differences between different mortgage products and pick the one that is best for you.
If that sounds a little intimidating, we understand! For additional guidance, be sure to connect with a licensed mortgage broker. Broker consultations are free, and they’re able to provide expert advice that’s personalized to you. They can also help you find a lower mortgage rate when you’re ready to apply/be pre-approved.
5. Improve your credit score
When it comes to getting a great mortgage rate, your credit score is really important. Your credit score tells your prospective mortgage provider how often you make your credit repayments on time, and how likely you are to default on your debts. If you have a lower credit score, a lender is going to be less interested in lending to you.
Generally, Canada’s best mortgage providers (the ones that offer the lowest rates) won’t lend to you if your credit score is less than 600. If your credit score is lower than that, you’ll need to find a “B lender” which will charge a higher interest rate. A higher interest rate will increase your regular mortgage payments, directly limiting the size mortgage that you can afford.
So, keeping your credit score as high as possible isn’t just good financial practice, it will also help you be pre-approved for a larger mortgage. To keep your credit score healthy, here are a few steps you can take:
- Check your credit score regularly. There are several companies that provide free credit score checks online. Knowing your credit score is an essential first step to knowing how far you have to go.
- Pay your bills on time, and in full. This is especially important for your loan repayments, as late payments will directly impact your credit score. If you won’t be able to make an upcoming payment, be sure to call your credit provider ahead of time to arrange an adjustment to your payment schedule.
- Use less than 30% of your total available credit. This shows that you don’t rely on debt, and are using your credit cards responsibly.
The bottom line
Getting approved for a larger mortgage takes time and effort, but there are concrete steps you can take to get a larger mortgage. The most important thing is to be honest about what you want from a home, what you can afford, and to try and think ahead as much as possible.
If you’d like to run the numbers on how much you can afford, use a mortgage affordability calculator. This will give you an estimate of what mortgage you can afford based on your income, debts, the purchase price, as well as lots of other factors.
- How to get a mortgage with bad credit
- What’s the difference between A lenders and private mortgage lenders in Canada?
- The "Bank of Mom and Dad" and your down payment
- The dos and don’ts of getting a mortgage pre-approval
- Should you change jobs while shopping for a home?
- How inflation affects your mortgage