A mortgage pre-approval is one of the most useful things you can do before you start seriously looking at homes. It tells you roughly how much a lender is willing to lend, it can lock in a rate for a few months, and it shows sellers and agents that you’re a serious buyer. It also surfaces problems, like a credit issue or missing paperwork, while there’s still time to fix them.
But a pre-approval isn’t a guarantee, and many buyers don’t realize how much of the work happens after they find a home. Here’s what lenders actually look at, how they calculate your maximum, and how to get the most out of a pre-approval.
Pre-qualification vs. pre-approval
Not the same thing
Pre-qualification
A quick estimate
- Based on numbers you provide
- Usually no documents checked
- Often no credit check
- Useful for early budgeting only
Pre-approval
A conditional commitment
- Lender reviews income, debts and credit
- Documents are collected up front
- Usually includes a rate hold of 90 to 120 days
- Still conditional on the property and final underwriting
The four things lenders look at
What goes into a pre-approval
Income
Lenders want stable, verifiable income. For salaried employees that means a job letter, recent pay stubs and often your latest T4s. Commission, bonus, part-time and self-employed income are usually averaged over two years.
Debts and debt ratios
Every monthly obligation counts: car loans, lines of credit, student loans, credit card minimums and support payments. These feed into two ratios lenders use to set your maximum.
Credit history
Your credit score and report show how you have handled debt. Insured mortgages generally need at least one borrower with a score of 600 or more, and the best rates go to stronger profiles.
Down payment and closing costs
Lenders confirm where your down payment is coming from and that it has been in your account for about 90 days, plus enough for closing costs of roughly 1.5% of the price.
How lenders calculate your maximum: GDS and TDS
Canadian lenders use two debt service ratios. The Gross Debt Service (GDS) ratio compares your housing costs to your gross income. The Total Debt Service (TDS) ratio adds all your other debts. For insured mortgages, the standard limits are 39% for GDS and 44% for TDS. Housing costs include the mortgage payment, property tax, heating and half of any condo fees.
Here’s a worked example for a household earning $120,000 a year ($10,000 a month) with a $650 car payment, $450 a month in property tax and $120 in heating:
How $10,000 of monthly income is capped by the TDS ratio
The lower of the two limits wins. In this case the car loan means the TDS ratio caps the mortgage payment at about $3,180 a month, not the $3,330 that GDS alone would allow. Paying off that car loan before applying would raise the maximum.
The stress test shrinks the number
Lenders don’t qualify you at the rate you’ll actually pay. Under federal rules, they use the higher of 5.25% or your contract rate plus 2%. If you’re offered 4.59%, you’ll be qualified as if the rate were 6.59%. That’s why a pre-approval amount is often lower than online calculators suggest.
Maximum mortgage with a $3,180 monthly payment (25-year amortization)
Documents to have ready
Typical pre-approval checklist
| Category | What lenders usually ask for |
|---|---|
| Identity | Government-issued photo ID for every borrower |
| Employment income | Job letter, two recent pay stubs, last two years of T4s |
| Self-employed income | Two years of T1 Generals and Notices of Assessment, business registration |
| Down payment | 90 days of account statements, FHSA or RRSP statements, gift letter if applicable |
| Other properties | Mortgage statements, property tax bills, leases if rented |
| Debts | Statements for loans, lines of credit and support obligations |
What a pre-approval does and doesn’t do
A pre-approval usually holds a rate for 90 to 120 days. If rates rise during that window, you keep the lower rate; if they fall, a good lender will give you the lower one. But the approval is still conditional. Once you have an accepted offer, the lender will review the specific property (sometimes with an appraisal), re-verify your income and credit, and confirm your down payment before issuing a final commitment.
From pre-approval to final approval
- Before you shop
Get pre-approved
Income, debts, credit and down payment are reviewed and a rate is held.
- While you shop
Keep your file stable
Avoid new debt, job changes or large unexplained deposits.
- Offer accepted
Submit the property
The lender reviews the home, the purchase agreement and sometimes an appraisal.
- Before conditions expire
Final approval
Once the lender signs off, you can firm up the deal.
How to strengthen your pre-approval
- Pay down or pay off smaller debts, especially car loans and credit card balances.
- Check your credit report for errors a few months before applying.
- Keep your down payment in one place so it’s easy to document.
- Apply with everyone who will be on title, so the lender sees the full household income.
- Ask about the rate hold length and whether it can be extended.
Examples use illustrative rates and Canadian semi-annual compounding, and are rounded. They are not rate quotes or advice. Last reviewed September 2026.