How to Qualify for a Mortgage with High Debt or Low Income (2025 Guide)
💡 Introduction
If you’re carrying student loans, car payments, or running your own business, getting approved for a mortgage can feel impossible — especially in Ontario’s competitive housing market.
The good news: 2025 has brought new lending options, policy updates, and creative strategies that can help you qualify, even with high debt or lower-than-average income.
Let’s break it down step-by-step so you know where you stand — and what to do next.
🧮 1️⃣ Understand Your Debt Ratios (GDS & TDS)
Your GDS (Gross Debt Service) and TDS (Total Debt Service) ratios determine whether a lender will approve you.
- GDS limit: 39 % – covers mortgage principal + interest + property tax + heating.
- TDS limit: 44 % – includes all other debts (car, credit cards, loans).
👉 If your TDS is above 44 %, you’ll need compensating factors to balance your file (see below).
💼 2️⃣ Use Alternate Lenders Who See the Whole Picture
Traditional banks tightened standards after the stress test, but Ontario borrowers now have access to credit unions, monoline lenders, and B-lenders that consider factors beyond a raw score.
These lenders look at:
✅ Consistent rental income or side business revenue.
✅ Net income after tax vs gross deposits for self-employed clients.
✅ Reasonable payment history even if credit utilization is high.
Pro Tip: A B-lender rate may be slightly higher, but can position you to refinance with a major bank in 12–24 months once your ratios improve.
🏡 3️⃣ Leverage Rental and Accessory Income Offsets
If you’re buying a duplex or a home with a basement suite, many Ontario lenders now use rental offsets up to 100 % — meaning they count the rental income to reduce your debt ratios.
Example: A $2,000 basement rental could boost your qualification by as much as $350,000.
💬 If you’re in Bradford, Barrie, or Pickering, zoning laws are favouring ADUs (Accessory Dwelling Units) — and that can be a game-changer for mortgage approval.
📊 4️⃣ Show Strong Bank Statements (if Self-Employed)
Self-employed borrowers are no longer boxed out of prime rates. Lenders like MCAP and Home Trust accept 12 months of business bank statements to verify income instead of tax returns.
If you can show steady revenue and low overdraft activity, you’ll often qualify for competitive rates.
💳 5️⃣ Clean Up Quick Wins on Your Credit
Even a 20-point credit score bump can mean the difference between approval and denial.
Do this 30 days before you apply:
- Pay off credit cards to < 30 % utilization.
- Don’t close old accounts (abrupt closures hurt average age).
- Avoid new credit applications.
Tip: Use free tools like Borrowell or Equifax to track your improvement weekly.
🧠 6️⃣ Consider Co-Borrowers or Guarantors
Adding a co-signer with stable income (e.g., a parent or sibling) can instantly reduce your ratios. Lenders combine incomes and split debt responsibility.
Make sure your co-signer understands they’re legally tied to the mortgage — but it’s a powerful short-term strategy.
💰 7️⃣ Take Advantage of 2025 Government Programs
Ontario and federal programs that can boost your application:
- First-Time Home Buyer Incentive (FTHBI) – shared-equity program to reduce your mortgage amount.
- Home Buyers’ Plan (HBP) – withdraw up to $60,000 from RRSP tax-free.
- Ontario Energy-Efficiency Grants – improve your home value and lower expenses (helps debt ratios).
(Internal link suggestion: add link to Nov 15 post on Hidden Mortgage Programs in Ontario.)
🔑 8️⃣ Work with a Mortgage Broker Who Can Package Your Story
A bank’s algorithm sees numbers; a broker tells your story.
When we submit your file, we highlight stability, consistency, and compensating factors like strong rental income, cash flow, or savings.
That’s how we turn a “decline” into an approval.
✅ Final Word & Next Step
High debt or low income doesn’t mean you can’t own a home in 2025. With the right lender, program, and strategy, you can absolutely qualify — and often with a better rate than you think.
Ready to see what you qualify for?
📞 Call (437) 961-0004 or Apply Now.
