Debt Ratios Explained: Get Approved for More

Why Debt Ratios Matter More Than You Think

Here’s the thing about debt ratios. They sound boring. Really boring. But understanding how they work can mean the difference between buying a $400,000 property and a $500,000 one.

Most people think debt ratios are the same everywhere. They’re not. And that’s where things get interesting.

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What Is a Debt-to-Income Ratio?

Let’s keep this simple. If you make $100,000 a year, a bank will typically let you use 44% to 50% of that income for debt payments. That includes your mortgage, credit cards, car loans, lines of credit – everything.

So on a $100,000 income, you could use $44,000 to $50,000 annually toward debt payments. The rest is yours for groceries, gas, and life.

Sounds straightforward, right? Here’s where it gets tricky.

Not All 44% Ratios Are Equal

Different lenders calculate debt ratios differently. Same number, different rules.

Some banks look at your credit card limits – not your actual balance. They assume you might max out your cards and calculate payments based on that worst-case scenario.

Let’s say you have $50,000 in credit card limits. Even if you pay off your cards every month, these banks will count $1,500 against you (3% of the limit). That’s $1,500 in “phantom debt” eating into your approval amount.

It’s Not Just Credit Cards

Every lender has their own quirks with how they treat:

Student loans (especially deferred ones)
Child tax benefits
Maternity leave income
Rental income from investment properties
Self-employed income

One lender might count 80% of your rental income. Another might only count 50%. That difference alone could add tens of thousands to your purchasing power.

What Happens With B Lenders?

B lenders (also called alternative lenders) play by different rules. They’ll often go up to 50% or even 60% debt-to-income ratios.

But here’s the real advantage – their 50% isn’t the same as a bank’s 50%.

B Lenders Are More Flexible

Alternative lenders will often:

Use your actual credit card payments instead of the 3% rule
Count more of your rental income
Accept guarantor income (someone who helps you qualify without being on the mortgage)
Look at bank statements for self-employed income instead of just tax returns

For self-employed folks, this is huge. Your tax return might show $60,000 because of write-offs, but your bank statements show $120,000 flowing through. A B Lender sees the real picture.

Private Lenders: When Nothing Else Works

Private lenders care less about debt ratios and more about the deal making sense.

Buying a property to flip that’s in rough shape? Banks won’t touch it. Private lenders will.

Moving from Alberta to Ontario without a job lined up yet? If you’ve got good credit and a solid plan, a private lender can make it work.

The key with private lenders is having a clear exit strategy. They want to know how you’ll pay them back or Refinance into a traditional mortgage.

Why “Too High” Doesn’t Always Mean No

If a bank tells you your debt ratios are too high, that’s not the end of the story. It just means your situation doesn’t fit their specific box.

Think of it like Thomas Edison and the light bulb. He didn’t fail – he just found ways that didn’t work until he found one that did.

Mortgages work the same way. Your profile might not work at Bank A because of how they calculate credit card debt. But it might work perfectly at Bank B or with an alternative lender.

The Mortgage Broker Advantage

Banks only offer their own products with their own rules. A mortgage broker sees the whole market.

A good broker knows which lenders are flexible with student debt. Which ones use actual payments instead of limits. Which ones are friendly to self-employed borrowers.

This isn’t magic or special access. It’s just knowing the rules each lender plays by and matching you with the right one.

What This Means for Your Next Property

Before you accept a “no” or a lower approval amount, ask questions. Find out exactly how your debt ratio was calculated. Ask about credit card limits, rental income calculations, and any income sources that might be getting shortchanged.

A few small changes in how your application is structured – or simply going to a different lender – could add significant purchasing power.

That boring debt ratio number? It might just be the key to your next investment property.

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Frequently Asked Questions

What is a good debt-to-income ratio for a mortgage in Canada?

Most banks want your debt-to-income ratio at 44% or below. Some will go up to 50%. B lenders and alternative lenders may accept ratios up to 60%, depending on your overall financial picture.

How do banks calculate debt-to-income ratios?

Banks add up all your monthly debt payments (mortgage, credit cards, loans) and divide by your gross monthly income. However, different banks use different rules for calculating those payments, which can significantly affect your approval.

Do credit card limits affect mortgage approval?

Yes, at some lenders. Certain banks calculate potential payments based on your credit card limits, not your actual balance. They typically use 3% of your limit as a minimum payment, even if you pay off your cards monthly.

What's the difference between A lenders and B lenders?

A lenders are traditional banks with stricter rules and lower rates. B lenders (alternative lenders) have more flexible qualification rules and can work with higher debt ratios, though rates are typically slightly higher.

Can I get a mortgage if a bank says my debt ratio is too high?

Often yes. Different lenders calculate debt ratios differently. A mortgage broker can help find lenders whose calculation methods work better for your specific situation.

How is self-employed income calculated for mortgages?

Banks typically use your tax return income. B lenders may look at your bank statements instead, showing actual money coming in. This often results in higher qualifying income for self-employed borrowers.

Can rental income help me qualify for a bigger mortgage?

Yes, but how much depends on the lender. Some count 80% of rental income, others only 50%. The right lender choice can significantly increase your purchasing power.

When should I consider a private lender?

Private lenders make sense when traditional options don't work – like buying a fixer-upper in poor condition, or when you're between jobs during a move. You'll need a solid exit strategy to refinance later.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

January 19, 2026