Having your mortgage application get rejected can be disheartening. However, just because you have been rejected by one lender doesn’t mean you can’t get a mortgage. Every bank has different criteria as to what is required to be approved for a mortgage – so don’t let yourself get discouraged by one rejection. But, if you would like to increase your chances of getting approved the next time around, find out why you were rejected by asking the lender you went to. By finding out exactly why you were rejected, you can work on improving the issue at hand and therefore having a greater chance the next time you apply.
To help you secure the mortgage you need, these are a few main reasons why people can have their mortgage applications rejected, and how to fix the problem mentioned.
1. Your credit score is too low
If you’ve been rejected because of your credit history, you may just need to spend some time improving your credit score. Is it a quick fix? No, it will definitely take some time, but this is also the most effective way to fix the issue. Ensure your debt is paid off or at least lower and that bill payments are being made on time. Having a higher credit score will not only improve your chances of getting approved for a mortgage, but it will also lower your mortgage rate as well – so it’s a win-win.
2. You have too small of a down payment
One reason you may have been rejected is having a small down payment. Depending on your credit score and other factors, a lender may require you to have a larger down payment before they will approve your mortgage application. When applying for a mortgage you are required to have a specific amount ready as a down payment depending on the price of the house you are looking at buying. As an example, if a house is under $500,000, you need to have at least a 5% down payment in cash, in your
bank account. If you don’t have a big enough down payment, you may either need to review the price range your shopping in, or you may just need to spend more time saving.
3. Your Job history isn’t consistent or your job type isn’t deemed reliable as a source of income.
Most lenders want to ensure that you have a steady income and job position so there are no risk factors in lending money to you. If you have been rejected because of inadequate employment history, there are a couple of ways you can go about this. One is finding a steady job and being employed there for a long period of time. If you’re constantly jumping from one job to the next, it can affect your chances of getting approved because lenders need to see that you are making a steady income. Understandably, sometimes being unemployed is out of your control, which I’m sure many of us understand with COVID-19 affecting many of our jobs. That is why coming in with a larger down payment and ensuring that other areas in your finances (loans, debt, credit history, etc.) are in great shape can also improve your chances of getting approved for the mortgage you want.
4. You have too many loans or too much debt already
Any loans or outstanding debt you have can greatly impact your approval chances depending on how much money you owe. Whether it’s car payments, school loans, credit card debt, other bank loans you may have borrowed, all of it will affect your chances of approval. The best way to reduce this as a problem is to lower or completely pay off this debt before applying for a mortgage. If it’s a small amount of debt, you may not need to worry, however, if you’re told it’s the reason you’ve been rejected, you may just need to spend time lowering this debt before taking on a bigger loan like a mortgage.
5. You didn’t pass the stress test
Ah yes, the dreaded stress test. The stress test is required to ensure that if mortgage rates increase, you will still be able to make your regular payments. On the bright side, the stress test has gone down three times since the COVID-19 pandemic began this year, easing things for Canadians looking to buy a house. However, if you still fail the stress test, you may just need to review your expectations and look for a house in a lower price range.
If your mortgage application has been rejected, don’t lose hope. If you want to get approved for a mortgage or at least improve your chances of getting approved for one, the best step you can take is choosing to work with your friendly neighbourhood mortgage broker! I would love to help you get approved for a mortgage and show you how to increase your odds of being approved in the process. Get started today by giving me, Darren Robinson a call at (705) 315-0516 to set up a meeting & we’ll venture forward together to secure the mortgage you need for a house that suits you and your family.