Last Updated: February 12, 2011  

If you are planning to buy a home, you will likely need to take out a mortgage. It's a good idea to take the time to learn what you will need in order to qualify for a mortgage loan.

Lenders will want to check how well you have paid your debts and bills in the past before they approve a mortgage. To do this, they will look at your credit history (credit report) from a credit bureau.

Before talking to a lender, it's a good idea to get a copy of your credit history and examine it carefully to make sure the information is complete and accurate. There are two major credit-reporting agencies: Equifax Canada Inc. and TransUnion of Canada. You can contact either one of them to get a copy of your credit report, usually for a fee.

If you have poor credit, lenders might not want to give you a mortgage. You will need to re-establish a good credit history by making debt payments regularly and on time. Most unfavourable credit information (including bankruptcy) drops off your credit file after seven years. Consider getting some credit counselling if you have a history of bad credit, or talk to your lender to discuss options.

If you have no credit history, it is important that you start building one by, for example, applying for a standard credit card with good interest rates and terms, making small purchases and paying them off as soon as the bills come in.

It's a very good idea to get a pre-approved mortgage before you start shopping for a home. A lender will look at your finances and figure out the amount of mortgage you can afford, then give you a written confirmation, or certificate, for a fixed interest rate. This confirmation will be good for a specific period of time. However, a pre-approved mortgage is not a guarantee of being approved for the mortgage.

You will be required to provide a lender with personal information, including identification such as your driver's license; details of your job, including confirmation of salary in the form of a letter from your employer; all your sources of income; details on all bank accounts, loans and other debts; and proof of financial assets.

You will also need to produce the source and amount of your down payment and deposit, as well as funds for the closing costs. Closing costs, such as legal fees and land-transfer fees, are usually between 1.5 and 4% of the purchase price.

The choices in mortgage financing can be bewildering - open versus closed, fixed rate versus variable rate, high ratio or conventional - and it's important to choose what's best for you. Talk over the various options with a mortgage expert and keep in mind that mortgages may have important payment features that can save you money and let you be mortgage-free sooner. Ideally, you want to choose the rate and term that will allow you to pay off your mortgage in the shortest amount of time for the least amount of interest.