Once a mortgage application is submitted, an underwriter at the lender reviews the borrower’s income, credit, down payment and the property itself, and decides whether to approve the mortgage, approve it with conditions or decline it. This page walks through those steps, what each check looks at, the conditions that usually come with an approval and what the commitment letter says. It is part of the mortgage lenders and brokers guide.
The underwriting steps
- File submitted. The bank or the borrower’s broker sends the application and documents to the lender.
- File review. The underwriter checks that the required documents are there; the mortgage document checklist lists what lenders usually ask for.
- Income verification. Employment and income are confirmed against the documents.
- Credit assessment. The lender pulls a full credit report and reviews the score, payment history and existing debts.
- Appraisal. The lender orders an appraisal (or uses an automated valuation model) to confirm the property’s value.
- Debt service ratios. Housing costs and other debts are measured against income at the stress-test qualifying rate.
- Down payment verification. The source of the down payment is traced.
- Mortgage insurer review for a mortgage with less than 20% down.
- Decision and commitment letter. The file is approved, approved with conditions or declined, and an approval comes with a commitment letter.
- Conditions met before the lender funds the mortgage on closing day.
How many days this takes depends on the lender, the file and the time of year; how long mortgage approval takes covers typical timelines and what slows them down. A mortgage pre-approval covers part of the credit and income review in advance, but the full underwriting still happens once there is an accepted offer on a specific property.
What the underwriter evaluates
Income verification
| Income type | What’s usually required | How it’s usually assessed |
|---|---|---|
| Salaried employee | Employment letter, recent pay stub, T4, Notice of Assessment (NOA) | The lender may call the employer to confirm the job is active |
| Hourly or part-time | Same as salaried, plus a history of consistent hours | Often a two-year average of T4 income, confirmed by NOAs |
| Self-employed or commission | Tax returns and NOAs for two or more years | See below |
| Rental income | Lease agreements, T776 (Statement of Real Estate Rentals), NOA | See below |
| Pension or government benefits | Pension statement, T4A(P), T4A(OAS) | Confirmed by NOA and generally treated as stable income |
| Child or spousal support | Court order or separation agreement, proof of consistent receipt | Lenders usually want a record of payments received |
| Investment income | T3/T5 slips, portfolio statements, NOA | Usually averaged over two years |
Self-employed borrowers are usually qualified on the net income from their tax returns averaged over two years, which is why mortgages for self-employed borrowers need more paperwork than a salaried file. Commission earners face a similar averaging test, covered in mortgages with commission income.
For an insured mortgage, CMHC sets how much rental income can count. When the rental is the property being insured, up to 50% of its gross rent can be added to your income, and its taxes and heat can be left out of the ratios. How rental income counts toward a mortgage covers the other cases.
If the borrower’s job changes between application and closing, the lender re-verifies income; changing jobs while mortgage shopping covers how lenders treat that.
Credit assessment
| Factor | What underwriters look at |
|---|---|
| Credit score | Each lender sets its own minimum; for an insured mortgage the insurer’s minimum also applies (see the insurer section below) |
| Payment history | Late payments, collections, judgments, and any consumer proposal or bankruptcy |
| How much available credit is in use | High balances against limits are a concern; credit utilization explains how it affects a score |
| Length of credit history | How long accounts have been open and how many are active |
| Recent inquiries | Several hard pulls in a short period; mortgage inquiries made close together may be treated as one, depending on the scoring model |
| Outstanding debts | Credit cards, car loans, student loans and lines of credit, all of which go into the TDS ratio |
Inquiries stay on a credit report for 3 years with Equifax and 6 years with TransUnion. A past consumer proposal or bankruptcy doesn’t rule out a mortgage, but it changes which lenders will look at the file and when.
Property assessment (appraisal)
| Appraisal component | What’s evaluated |
|---|---|
| Market value | Recent sales of comparable properties nearby |
| Property condition | Structural integrity, health and safety hazards, major repairs needed |
| Location | Neighbourhood, marketability, urban, suburban or rural setting |
| Property type | Detached, semi, townhouse or condo, each with its own lending criteria |
| Zoning and legal use | Confirms residential use; identifies illegal units or non-conforming uses |
| Environmental risks | Flood zones and nearby contamination sources |
| Appraisal outcome | What happens |
|---|---|
| At or above the purchase price | The file proceeds normally |
| Below the purchase price | The lender lends on the lower value, and the buyer covers the gap with more cash or renegotiates the price |
| Condition issues found | The lender may require repairs before closing or hold back funds until repairs are done |
| Property outside insurer guidelines | The insurer may decline the file (for example some condo projects, rural or mixed-use properties) |
Debt service ratios
The underwriter measures two ratios: gross debt service (GDS), the housing costs as a share of gross income, and total debt service (TDS), housing costs plus all other debt payments. For an insured mortgage, CMHC caps your housing costs at 39% of gross income (GDS) and your housing costs plus other debt payments at 44% (TDS); lenders set their own limits for uninsured mortgages. GDS and TDS explained shows how each is calculated, with worked examples.
Both ratios use the qualifying rate, not the rate on the mortgage. Lenders check that you could afford the payments at the greater of your contract rate plus 2% or 5.25%, a floor set by OSFI for uninsured mortgages and by the federal government's mortgage insurance rules (the Minister of Finance's Eligible Mortgage Loan Regulations) for insured ones. The mortgage stress test guide covers the rule’s history and exemptions.
Down payment verification
Lenders confirm that the down payment is the borrower’s own money (or a documented gift) and trace where it came from. They typically ask for recent bank statements, and question large deposits that the account history doesn’t explain.
| Source | Documentation usually required |
|---|---|
| Personal savings | Recent bank statements showing the money built up in the borrower’s accounts |
| Gift from immediate family | A gift letter confirming the money doesn’t have to be repaid, plus proof of the transfer |
| RRSP (Home Buyers’ Plan) | RRSP statements and the withdrawal confirmation; the Home Buyers’ Plan guide covers the limits and eligibility |
| FHSA withdrawal | FHSA statements; FHSA withdrawal rules cover what makes a withdrawal qualifying |
| Sale of an existing property | Signed agreement of purchase and sale, or the closing statement |
| Equity from another property | Recent mortgage statement and HELOC or refinance documents |
| Borrowed funds | Lender policies vary; where allowed, the loan payment counts in TDS |
Lenders also have anti-money-laundering obligations under FINTRAC rules, so funds without a clear documented trail (large cash deposits, transfers from unknown third parties) can delay or stop an approval.
Mortgage insurer underwriting
With less than 20% down, the mortgage must carry mortgage default insurance from CMHC, Sagen or Canada Guaranty, and the insurer reviews the file as well as the lender.
| Insurer requirement | Details |
|---|---|
| Credit score | For a CMHC-insured purchase, at least one borrower or guarantor needs a credit score of 600 or more; CMHC may use other ways to judge creditworthiness for a borrower with no credit history. Sagen and Canada Guaranty set their own criteria. |
| Purchase price | Insured mortgages are available only on homes priced below $1.5 million |
| Maximum amortization | 25 years, or 30 years for first-time buyers and buyers of new builds |
| GDS and TDS | 39% and 44% for a CMHC-insured mortgage |
| Property | Must be intended for owner occupancy, up to 4 units |
| Insurance premium | A percentage of the mortgage that rises with the loan-to-value ratio, usually added to the mortgage; what CMHC insurance is and what it costs has the premium schedule |
Approved with conditions
Most approvals come with conditions that must be satisfied before the lender funds the mortgage.
| Common condition | What the borrower provides |
|---|---|
| Updated employment letter | A recent letter confirming the job is still active |
| Proof of down payment | A bank statement showing the funds available for closing |
| Property insurance | Confirmation of home insurance with the lender named as loss payee |
| Lawyer’s details | Name and contact for the real estate lawyer |
| Signed commitment letter | The lender’s formal mortgage offer, signed and returned |
| Explanation letter | A written explanation of credit issues, employment gaps or large deposits |
| Updated credit check | The lender may pull credit again before closing to confirm no new debts |
| Title insurance | Arranged through the lawyer; protects the lender against title defects |
Common reasons for a decline
| Reason | What went wrong |
|---|---|
| GDS or TDS over the limits | Too much debt relative to income at the qualifying rate |
| Credit score too low | Below the lender’s or insurer’s minimum |
| Income not verifiable | The income on the application doesn’t match the documents |
| Low appraisal | The home appraised below the purchase price |
| Property doesn’t qualify | A condo failed insurer review, a rural property or condition issues |
| Down payment source unclear | The source of funds can’t be documented |
| Employment changed | Job loss or a job change between pre-approval and closing |
| New debt taken on | A car loan or new credit after pre-approval |
What to do when the bank denies a mortgage covers the options after a decline, and ways to qualify for a larger mortgage covers the levers on the ratios.
What tends to speed underwriting up
| Action | Why it helps |
|---|---|
| A complete file at submission | Incomplete files wait for missing documents |
| Fast responses to conditions | Each outstanding condition holds up funding |
| A pre-approval first | Part of the credit and income review is already done |
| A broker who matches the file to a lender | Files sent to lenders that fit the profile are declined less often; questions to ask a lender or broker covers what to check |
| A stable financial picture | No new debts, job changes or large purchases during the process |
| Lawyer and insurance arranged early | Both are standard conditions |
The commitment letter
The commitment letter (also called a mortgage approval or formal approval) is the lender’s written offer setting out the mortgage’s terms.
| Component | What it contains |
|---|---|
| Mortgage amount | The approved loan amount |
| Interest rate | The contract rate (from a rate hold or a new quote) |
| Term | The length of the term |
| Amortization | The repayment period |
| Payment frequency and amount | Monthly, bi-weekly or accelerated bi-weekly, and the exact payment |
| Prepayment privileges | How much extra can be paid each year without a penalty |
| Conditions to fund | Items still needed before closing |
| Expiry date | The date the offer lapses if it isn’t accepted or the deal doesn’t close |
| Penalty terms | How the prepayment penalty is calculated if the mortgage is broken early (how mortgage penalties are calculated) |
From commitment to closing
| Step | Who does it | When |
|---|---|---|
| Sign and return the commitment letter | Borrower | Shortly after receiving it, before its acceptance deadline |
| Satisfy remaining conditions | Borrower | Before closing |
| Send mortgage instructions to the lawyer | Lender | Before closing |
| Prepare documents | Lawyer | Before closing |
| Sign mortgage documents | Borrower and lawyer | A few days before closing |
| Fund the mortgage | Lender, into the lawyer’s trust account | Closing day |
| Register the transfer and mortgage | Lawyer | Closing day |
| Release the keys | Real estate agent or lawyer | Closing day |
Related resources
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and September 29, 2026. How we check facts.
- CMHC: CMHC Purchase
- CMHC: Calculating GDS / TDS
- CMHC: Rental Income
- Department of Finance Canada: Boldest mortgage reforms in decades come into force today
- Financial Consumer Agency of Canada: How much you need for a down payment
- Financial Consumer Agency of Canada: How long information stays on your credit report
- Justice Laws (Canada): Eligible Mortgage Loan Regulations
- OSFI: OSFI exempts uninsured mortgage straight switches from the prescribed MQR andβ¦
- OSFI: Amendments to the minimum qualifying rate for uninsured mortgages