How to Qualify for a Commercial Mortgage Canada

Qualifying for a commercial mortgage in Canada is a different process than getting a residential mortgage. If you have only ever financed single-family homes or small multi-family properties under residential rules, commercial lending will feel unfamiliar. Understanding commercial vs residential mortgage differences helps set proper expectations for the qualification process. The focus shifts from you — your income, your credit score, your debt ratios — to the property itself. Can this building generate enough income to support the debt? That is the question commercial lenders are trying to answer.

This guide walks you through every requirement, every step of the process, and the most common reasons deals fall apart (so you can avoid them).

The Fundamental Difference: Property Qualification vs Personal Qualification

In residential lending, the bank cares primarily about your personal finances. Your income, your debts, your credit score — these determine how much you can borrow. The property matters, but mostly as collateral.

In commercial lending, the property is the primary focus. Lenders underwrite the building’s ability to generate income and cover its debt obligations. Your personal finances still matter, but they take a secondary role. This is why investors whose debt ratios are maxed out under residential rules can still qualify for commercial mortgage financing in Canada — the property stands on its own.

This distinction is important because it changes how you prepare for the application. Instead of focusing on your personal income and debt ratios, you need to focus on presenting a property with strong income, low vacancy, and solid operating fundamentals.

Check Your Commercial Eligibility

DSCR Requirements: The Number That Matters Most

The Debt Service Coverage Ratio is the single most important metric in commercial mortgage qualification. It measures whether the property generates enough income to cover its mortgage payments and operating costs.

The formula:

DSCR = Net Operating Income / Total Debt Service

Net operating income (NOI) is the property’s gross income minus operating expenses (property taxes, insurance, maintenance, management fees, utilities). Total debt service is the annual mortgage payment including principal and interest.

What Lenders Want to See

A DSCR of 1.25 means the property generates 25% more income than needed to cover debt payments. That cushion protects the lender if rents drop, vacancy increases, or unexpected expenses arise.

If your property’s DSCR is below the minimum threshold, you have three options: increase rents (if they are below market), reduce operating expenses, or increase your down payment (which reduces the mortgage amount and therefore the debt service).

Run your property’s numbers through our DSCR calculator for Canadian deals to see exactly where you stand before applying.

Down Payment Requirements by Property Type

Commercial down payments vary significantly based on the financing path and property type. Here is what to expect:

CMHC-insured financing offers the lowest down payment requirements, but it is limited to multi-family rental properties with five or more units. If you are buying office, retail, or industrial, conventional financing is your only option and you are looking at 25% down at minimum. For multi-family deals, use our CMHC MLI max loan calculator to see how much financing your property could qualify for.

For more detail on how much you actually need by property type, see our guide to commercial mortgage down payment requirements in Canada. The down payment can come from personal savings, equity in other properties, lines of credit, or joint venture partners. Most lenders want to see that the equity is coming from a verifiable source — they will ask for documentation showing where the money came from.

Required Documentation Checklist

Commercial mortgage applications require significantly more documentation than residential deals. Getting this organized before you apply speeds up the process and signals to lenders that you are a serious, prepared borrower.

Property Documents

• Rent roll: Current list of all tenants, unit sizes, lease terms, and monthly rents
• Historical financial statements: Two to three years of income and expense statements for the property
• Operating budget: Projected income and expenses for the upcoming year
• Property tax assessment: Current assessed value and annual tax amount
• Insurance certificate: Current property insurance details and premiums
• Lease agreements: Copies of all tenant leases
• Capital expenditure history: Major repairs and improvements over the last three to five years
• Utility bills: 12 months of utility expenses if paid by the owner

Borrower Documents

• Personal net worth statement: Assets and liabilities for all guarantors
• Personal tax returns: Two to three years of notices of assessment (T1 generals)
• Business financial statements: If purchasing through a corporation
• Real estate portfolio summary: Details on all other properties owned
• Bank statements: Three to six months showing down payment funds
• Resume or experience summary: Your background in property management and real estate investment

Third-Party Reports (Usually Ordered During the Process)

• Appraisal: Independent property valuation by a certified commercial appraiser
• Phase I Environmental Site Assessment: Required for most commercial deals and mandatory for CMHC
• Building condition report: Assessment of the property’s physical condition (required for CMHC)
• Survey or real property report: Confirms legal boundaries and encroachments

The environmental assessment alone can cost $3,000 to $5,000 and take two to four weeks. Budget for these costs and plan your timeline accordingly.

Start Your Application Review

The Underwriting Process: Step by Step

Here is what happens from the moment you submit a commercial mortgage application to the day you close.

Step 1: Initial Deal Review (Week 1)

You or your mortgage broker submits the deal package to one or more lenders. The lender does a preliminary review to determine if the deal fits their lending criteria. This is a high-level check: property type, location, size, approximate DSCR, and borrower profile.

If the deal passes initial screening, the lender will issue a term sheet or letter of intent outlining proposed terms (rate, LTV, amortization, fees). Our guide to commercial mortgage rates in Canada explains what drives those rate quotes. This is not a commitment — it is an indication of what they are willing to do.

Step 2: Application and Document Collection (Weeks 2-4)

Once you accept the term sheet, the formal application begins. The lender requests all property and borrower documentation. You order the appraisal, environmental assessment, and building condition report.

This is where many deals stall. If your documents are incomplete or the appraisal takes longer than expected, the timeline stretches. Having everything organized before you start — ideally before you even make an offer on the property — prevents delays.

Step 3: Underwriting and Analysis (Weeks 3-6)

The lender’s underwriting team analyzes every aspect of the deal:

• Income analysis: Are the rents at market? Is the vacancy rate reasonable? Are the projections achievable?
• Expense analysis: Are operating costs in line with comparable properties? Are there any red flags?
• Property valuation: Does the appraisal support the purchase price? What is the cap rate compared to market?
• Environmental review: Does the Phase I assessment reveal any contamination or risk?
• Borrower assessment: Does the borrower have adequate experience, net worth, and liquidity?

Underwriters are trained to be skeptical. They are looking for reasons the deal might not work. Your job is to present clean, defensible numbers that hold up under scrutiny.

Step 4: Credit Committee Approval (Week 5-7)

For conventional lenders, the underwriter presents the deal to a credit committee for approval. This committee evaluates the risk and decides whether to approve the loan and on what terms.

For CMHC-insured deals, the lender submits the package to CMHC for mortgage insurance approval. CMHC has its own review process that adds time but results in better rates and terms.

Step 5: Commitment Letter (Week 6-8)

Once approved, the lender issues a formal commitment letter. This document outlines every term and condition of the mortgage: rate, LTV, amortization, term, prepayment provisions, covenants, and conditions that must be met before funding.

Read this document carefully. Have your lawyer review it. The commitment letter becomes the basis of your mortgage agreement.

Step 6: Legal and Closing (Weeks 8-12)

Lawyers on both sides prepare and review mortgage documents. Title insurance is arranged. Any outstanding conditions from the commitment letter are satisfied (insurance certificates, corporate resolutions, final property inspections).

Closing day involves signing documents and transferring funds. The lender advances the mortgage, your lawyer distributes the purchase price, and you take ownership.

Typical Total Timeline

CMHC deals take longer because of the additional approval layer, but the better rates and terms are usually worth the wait. Plan your purchase agreement timelines around these realities.

Personal Qualification: What Lenders Want From You

Even though the property drives the deal, lenders still evaluate you as a borrower. Here is what they are looking for.

Net Worth

Most commercial lenders want your net worth to be at least 25% of the loan amount (or a minimum of $100,000, whichever is greater). Net worth includes all assets minus liabilities: real estate equity, investments, savings, business value.

Liquidity

Beyond net worth, lenders want to see liquid assets — cash, investments, or accessible lines of credit. This ensures you can cover closing costs, initial reserves, and unexpected expenses. Expect lenders to require liquidity equal to 5-10% of the total project cost.

Experience

Lenders give better terms to borrowers who have managed similar properties. If you are a first-time commercial buyer, our first-time commercial property buyer guide walks through exactly how to prepare. Partnering with an experienced property manager or co-investing with a seasoned operator can also strengthen your application.

Credit Score

While not as central as in residential lending, your credit score still matters. Most commercial lenders want to see a score above 650. Below that, you may be limited to B lenders with higher rates. Above 700, you have access to the full range of A lenders and CMHC programs.

Common Reasons for Denial (and How to Fix Them)

Commercial mortgage applications get declined more often than residential ones. Here are the most common reasons and what to do about each.

DSCR Too Low

The problem: The property does not generate enough income to cover debt payments at the requested loan amount.

The fix: Increase rents to market levels before applying. Reduce vacancy by improving the property or marketing more effectively. If the numbers still do not work, increase your down payment to reduce the loan amount and improve the DSCR. You may also explore longer amortization periods through CMHC programs, which reduce annual debt service.

Appraisal Comes in Low

The problem: The independent appraiser values the property below the purchase price, reducing the LTV the lender will offer.

The fix: You can challenge the appraisal with comparable sales data, make up the gap with additional equity, or renegotiate the purchase price with the seller. In competitive markets, appraisal gaps are increasingly common.

Environmental Concerns

The problem: The Phase I environmental assessment identifies potential contamination that requires further investigation (Phase II) or remediation.

The fix: Most lenders will not finance a property with known contamination until it is remediated. If a Phase II assessment confirms contamination, you need to determine remediation costs and factor them into your offer price. In some cases, environmental insurance can satisfy lender requirements.

Insufficient Experience

The problem: You have never managed a commercial property and the lender is not comfortable with the risk.

The fix: Partner with an experienced property manager or co-borrower. Present a detailed management plan. Some lenders will accept a strong third-party property management agreement as a substitute for personal experience.

Weak Personal Financials

The problem: Your net worth, liquidity, or credit score does not meet lender minimums.

The fix: Add a co-signer or co-borrower with stronger financials. Build up your savings and credit score before applying. For joint venture deals, the stronger financial partner can strengthen the overall application.

Property Condition Issues

The problem: The building condition report reveals deferred maintenance or structural issues that concern the lender.

The fix: Get contractor quotes for the required repairs. Some lenders will fund with a repair holdback — they advance the full mortgage but hold a portion in reserve until repairs are completed. CMHC may require repairs to be completed before insuring.

If you have been declined for a commercial mortgage in Canada and are not sure what went wrong, getting a second opinion from a broker who specializes in commercial deals can often identify a path forward that your original lender missed.

Get a Second Opinion on Your Deal

Tips to Strengthen Your Application

These steps will make your commercial mortgage application as strong as possible:

1. Get your rent roll cleaned up. Make sure all leases are signed, current, and at market rates. If you have tenants on handshake agreements, get them into proper leases before applying.

2. Reduce vacancy first. If you are buying a property with high vacancy, wait until occupancy improves or negotiate the purchase price to reflect the risk.

3. Organize financials professionally. Use a CPA to prepare or review the property’s income and expense statements. Clean, professionally prepared financials build lender confidence.

4. Present a management plan. Show the lender how the property will be managed, who will handle day-to-day operations, and how you will maintain occupancy and income.

5. Work with a broker, not just one bank. A commercial mortgage broker can present your deal to multiple lenders and identify the best fit. Different lenders have different appetites for different property types, locations, and deal sizes.

6. Budget for due diligence costs. Appraisals, environmental assessments, building condition reports, and legal fees can total $15,000 to $25,000 on a typical commercial deal. Have this capital available before starting the process.

7. Build relationships before you need them. Attend real estate investment events, connect with commercial lenders, and build a track record of smaller deals before approaching lenders for larger ones.

Frequently Asked Questions

Written by

LendCity

Published

February 8, 2026

Reading Time

12 min read

Share this article

Tags

Commercial Properties Mortgage Qualification Mortgage Basics Dscr Loans

Key Terms in This Article

Commercial Mortgage

Commercial Mortgage

Financing for commercial properties like retail, office, or multifamily buildings with 5+ units, with different qualification criteria than residential mortgages.

DSCR

DSCR

Debt Service Coverage Ratio - a metric that compares a property's net operating income to its mortgage payments. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Lenders typically require a minimum DSCR of 1.0 to 1.25 for investment property loans.

NOI

NOI

Net Operating Income - the total income a property generates minus all operating expenses, but before mortgage payments and income taxes. Calculated as gross rental income minus vacancies, property taxes, insurance, maintenance, and property management fees.

LTV

LTV

Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.

Down Payment

Down Payment

The upfront cash payment when purchasing a property. For 1-4 unit investment properties, minimum 20% down is required. 5+ unit multifamily can use CMHC MLI Select with lower down payments, and house hackers can put as little as 5% down on owner-occupied 2-4 plexes.

Underwriting

Underwriting

The process lenders use to evaluate the risk of a mortgage application, including reviewing credit, income, assets, and property value to determine loan approval.

Commercial Lending

Commercial Lending

Financing for commercial real estate or business purposes, typically qualified based on property income (NOI) rather than personal income. Includes mortgages for multifamily buildings (5+ units), retail, office, and industrial properties.

Appraisal

Appraisal

A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.

Amortization

Amortization

The period over which a mortgage is scheduled to be fully paid off through regular payments of principal and interest. In Canada, common amortization periods are 25 or 30 years, though the mortgage term (when you renegotiate) is typically 1-5 years.

Environmental Assessment

Environmental Assessment

A professional evaluation of a property's environmental condition, typically required by commercial lenders. Phase I reviews historical records for contamination risk. Phase II involves soil and water testing. Essential for commercial and industrial property purchases.

Insured Mortgage

Insured Mortgage

A mortgage backed by mortgage default insurance from CMHC, Sagen, or Canada Guaranty, required when the down payment is less than 20% on owner-occupied properties. The insurance premium (ranging from 2.8% to 4% of the mortgage) is added to the loan. Insured mortgages qualify for lower interest rates because the lender's risk is covered by the insurer.

Hover over terms to see definitions, or visit our glossary for the full list.

Related Articles

• Office Building Financing Guide for Canadian Investors
• Retail Property Financing Guide for Canadian Investors
• First-Time Commercial Property Buyer's Guide
• The Investor's Commercial Financing Options Companion
• 100% Financing: Owner-Occupied Commercial Canada