7 Things Preventing Your Mortgage Approval

Are you having trouble getting approved for a mortgage? Mortgages are a complex product, but applying doesn't have to be. I have worked with several applicants who, for one reason or another, were initially declined elsewhere, but were successful obtaining a mortgage through working with me. This could simply be due to the number of lenders I have available to me (your application may not be a fit for one lender, but may be a great fit for another!), the difference in experience, my ability to get exceptions approved with lenders, or fresh eyes looking at an application and making small suggestions on how to improve your approval chances (ie. paying off a debt).     

Getting declined for a mortgage application can feel awful and no mortgage professional wants to issue a decline. But there can be a big difference in knowledge, experience, and lenders. But, there are times when the mortgage decline sticks and it's useful to understand what contributes to a decline.

7 Things Preventing Your Mortgage Approval

1. Employment Status
   Borrowers should have established, secure employment. Those new to the workforce should still apply, as their education years can be factored into their experience. However, short term, contract, and non-guaranteed employment can be challenging for a lender to approve due to the higher potential that employment could end compared to a permanent, full-time, salaried employee or an established self-employed applicant. 

2. Income
    Applicants must have enough income to carry the mortgage, their other debts and pass the government’s stress test.  Income must also be from reliable and verifiable sources. 
3. Income vs. Debts
   There are percentages that are allowed for how much income you have versus how much income you can carry on a mortgage application. Those ratios include the mortgage, stress test, property tax, heat, and all other liabilities you may have (student loans, car loans, line of credit, credit cards, personal loans, co-signed loans, child support payments, etc.)
4. High Revolving Debt
   Sometimes, if an applicant has extremely high revolving debt (ie. credit cards, lines of credit)  despite having the income to carry it, a lender may decline an application to increased risk. 
5. Down Payment
   Down payment can come from many sources such as your own savings, RRSP, other investments, gifted from family member, borrowed from a line of credit, borrowed from a down payment assistance program, etc. If your down payment is from your own account or gifted from family, it’s considered to be from your own resources. If your down payment is not from your own resources, the rest of the application should show strength and stability. If there are other elements of the application that may pose risk, the lender may require the down payment to come from your own resources, such as saving it yourself or asking a family member.
6. Credit
   Good credit history is a major component to an approved mortgage application. Even an applicant with the most stable employment, income and low debt can be declined due to derogatory credit. Derogatory credit could be late or missed payments, collections, consumer proposals, bankruptcies, etc. This includes if you have co-signed for someone else's loan, and they have been delinquent on the payments.  A caveat to that is if there is significant down payment (ie. 20-35%). In that case, a significant down payment can help offset deep credit bruises, with an increased interest rate, of course. Your interest rate will directly reflect your situation and application (auto insurance and your driving record is comparable to your credit and interest rates). Ideally, late or missed account payments, collections, consumer proposals, bankruptcy, etc., should be cleaned up with re-established credit.
7. Property
   Everything above can be perfect, BUT if the property is undesirable to the lender, the application will be declined. Borrowers should pick properties that are in good condition, are marketable in the future and don’t have any major negative characteristics. For example, some lenders or insurers, can view a house being located next to a gas station or auto garage as undesirable. The same can be true for being too close to the ocean, having a shared well, or other environmental factors. Also, some lenders have strict lending area boundaries which could mean the house you’ve selected is outside of the lending zone for particular lenders. However, a Mortgage Broker has the option to apply to other lenders that may be interested in the property. 

If you’ve got questions, I’d love to find the answers. Reach out anytime!