Now Offering
In-Person &
Virtual Meetings

Book Now Book Now

Mortgage Application Rejected? 5 Reasons Why And How To Fix Them

Mortgage Application Rejected? 5 Reasons Why And How To Fix Them

couple being rejected for a mortgage

couple being rejected for a mortgage application

Let’s face it – the sting of rejection is never pleasant, especially when it comes to something as significant as your mortgage. While the majority of mortgage applications receive a green light, occasional roadblocks can emerge, leading to the discouraging news of a denial by a lender in relation to your mortgage.

Whether you’re just starting out on your mortgage application journey, are in the midst of the renewal process, or are grappling with a recent denial – understanding the why and the how behind mortgage approvals and rejections will help you remedy your situation.

Specifically, these are five common reasons that your bank or lender will deny your mortgage application and some insight on how to navigate these obstacles to get the approval you need instead.

Your Mortgage Was Denied Because You Don’t Meet The Bank’s Guidelines

Not meeting the bank’s rules is a common reason for a rejected mortgage application. Each lender has their own guidelines, and some are stricter than others. For example, one lender might approve you if you’re in a contract position, while another might say no.

Banks have rules for every part of the mortgage application, like how much income you can use towards mortgage payments, how they measure your debt, and how they calculate property taxes for new homes. Not understanding these rules may lead to your application being denied, wasting time and energy, which can be crucial when dealing with a quick-close property. This is why it’s so important to get pre-approved for the mortgage you need before you start your house hunt.

If you’ve been denied it’s time to consult an experienced mortgage broker who will review your financial situation and find a lender with the guidelines that work for you. If one bank’s policy left you in the lurch, a savvy mortgage broker can guide you toward a more lenient path to homeownership. It’s all about finding the right fit.

Your Mortgage Application Was Rejected For Poor Credit

Credit is a big deal when it comes to getting a mortgage. Banks won’t give you a big loan unless you’ve shown you’re good at paying back money. Keeping your credit card balance below 35% of your available credit is crucial; regularly going over this amount can lower your credit score which may affect your chance of a mortgage approval.

If your credit is bad, maybe because you missed a lot of payments or went through bankruptcy, getting a mortgage can be tough unless you’ve worked on fixing your credit. Having no credit is also a problem – unless you’re new to Canada, it’s hard to get a mortgage on your own without having a credit history to prove you can manage your money well.

If your credit is poor or non-existent, it’s crucial to work on building it up. One effective way is to get a credit card designed for low or bad credit and ensure all payments are made promptly. Keep in mind that improving your credit score is a gradual process so, it will take time.

However, if you’re eager to buy a home now, you will need a guarantor. A guarantor assures the lender that you’ll make your payments, and if you don’t, the guarantor is responsible for the outstanding amount. It’s essential that you both fully understand and agree to this commitment before jumping in with both feet. Making an appointment with a mortgage specialist to discuss the details of this type of arrangement is a smart idea. It’s also important to make sure that the person you ask to be your guarantor is family or an extremely close friend as the ask isn’t a small one.

Your Application Is Denied Due To The Condition Of The Property

In this case, you’ve been pre-approved for your mortgage. Good for you! You can go out and buy the house you fell in love with. But wait. When you’re pre-approved for a mortgage, the assumption is that the home you’re buying is in good condition and won’t require a lot of fixes to make it livable and valuable. However, you must still meet the bank’s guidelines so a serious fixer upper could be cause for denial.

Depending on the property itself and your borrowing history, your bank may ask for a full appraisal. If a full appraisal is needed and there are issues, your mortgage may be denied. There may be other issues that your lender won’t be willing to approve that have to do with the location of your property (ie. water quality, emergency access).

If this is the case, there are a few solutions to this issue. For example, if the property assessment is undervalued, you can consult with a mortgage broker who will find you another lender. Or you can do a second appraisal, to see if the property’s value increases. For property issues that might be costly, you can ask the sellers to fix them ahead of your purchase so your mortgage application gets approved but, their agreeance to do so, isn’t always a simple, yes.

Your High Debt Ratio Could Be The Reason You’re Rejected

Having a high debt-to-income ratio is another reason your mortgage application might get denied. Using my debt service calculator will help you understand how this works. There are a few reasons why your TDS (Total Debt Service) ratio is too high.

Is the home you’re buying outside of your price range? If you increase your down payment, it may fix this. If your income is too low or unstable, you could ask someone like a parent to co-sign. You could also be denied if you have too much debt overall. The lenders realize how much pressure comes along with a large debt load. That’s why the stress test exists.

When you’re trying to get a mortgage, lenders check two debt ratios: the Gross Debt Service (GDS) Ratio and the Total Debt Service (TDS) Ratio. GDS looks at the costs of the property you want to buy, like mortgage payments, property taxes, heat, and condo fees. TDS includes all of that plus any other debts you might have, such as car payments, school loans, or credit card debt.

Although you might think that having debt makes getting a mortgage impossible, it’s still doable, especially if your GDS ratio is below 39% and your TDS ratio is below 44%. So, even if you have student loans or other debts, you could still qualify for a mortgage.

If your TDS Ratio is too high, the easiest fix is to start paying off your debts and once you have, reapply for a mortgage. This helps bring your TDS Ratio back to a manageable level. But if you’re dealing with many debts, it can get confusing. Talking to a mortgage broker who is also a financial advisor can help you craft the best plan of action. They can guide you on which debts to prioritize. They will also help you explore lenders with more flexible rules.

Low Income Or Unstable Employment May Cause Mortgage Denial

When securing a mortgage you can hit a roadblock if your income is uncertain or your job situation is a bit shaky. The key concern for mortgage lenders is your ability to consistently make payments throughout the mortgage term. While having a stable, full-time job with a fixed salary makes the process smoother as you just submit your employment letter and recent paystub, things can get tricky if your income scenario is less conventional.

For instance, if you’re paid hourly without a guaranteed schedule, are self-employed, or working on a contract basis you may have trouble securing mortgage financing. This is where a knowledgeable mortgage broker becomes your ally. They know that some lenders may be open to your contract work if you have a solid industry track record. So, while it may be more challenging, it’s not impossible.

You could also look at asking someone you know to be a co-signer for your mortgage. With a co-signer, you can use their income to boost your mortgage eligibility, making it easier to afford the property you have your eye on.

Overall, If Your Bank Or Lender Rejects You, Call Me!

Facing a denied mortgage application might feel discouraging, but it’s not the end of the road when it comes to locking in the mortgage you need. Take a moment to step back and reassess the situation. Rather than panicking, use this setback as an opportunity to understand the reasons behind the denial. Then use the insight to address the issues and increase your chances of approval the next time around.

As a financial advisor and a mortgage expert, I’m here to guide you through this process. Let’s review your mortgage application and look into your debt ratios together. I will find you with the ideal lender for your unique circumstances. Plus, I can offer better interest rates and options than traditional banks. With my support and expertise, your homeownership journey doesn’t have to end here. We can get you into that dream home with a little teamwork.

Call me at (705) 315-0516, or click this link to set up a virtual meeting with me now. Don’t go it alone, I can offer you the friendly, free mortgage advice you need to help you buy your dream home.

× Close this modal popup