Occasionally I'll get a call from an applicant who makes great income but has been declined for a mortgage application. There have been many times where I've been able to give the application a second opinion and make it work (hint - call a Mortgage Broker first!). But there are times that no matter who assess the file, it cannot be approved. This is often hard to understand when there's high income. Here's the reasons why an application may get declined, even with a high income;
Application Factors
- Income - Income is certainly the first step, you want to ensure you have cash flow coming into your household each month, whether it be through salaried or hourly employment, business for self, or pension/investment income, etc., and that there's a history of that income.
- Employment Tenure - Lenders are typically looking to confirm that you have permanent full-time employment status (you're past your probationary period), at least 3 years history of employment or tenure in your field, or two years history of filing taxes working in your field. There can be some exceptions surrounding these guidelines, but in the case of exceptions the rest of the application must very strong.
- Down Payment - Funds from your own resources is considered more favourably than borrowed down payment. Sometimes borrowing the down payment adds additional risk to the application if other factors don't have as much strength. Consider having some, if not all, down payment from your own savings, investment or gifted from immediate family member.
- Credit History - This is the one I see most commonly affecting applications that should otherwise qualify. Your credit history provides the lender with what has happened in the past and can be a good indicator to what will likely happen in the future. Be sure to keep all of your accounts in good standing, always paying at least the minimum payment due, paying before the due date, and not maximizing the available credit to you. That means, if you have $10,000 credit limit on a card that your balance is not $9,999. I know it sounds counterintuitive, because we as borrowers think if the funds are available why would we be penalized for accessing it. But accessing all of your available credit contributes to reducing your credit rating. If there are any outstanding accounts/collections, be sure those get paid in full. The long they are on your credit bureau as outstanding, the more it reduces your credit rating. Be mindful of co-signing for others, as they may not be as diligent with their repayment history and co-signed or joint accounts will impact your own credit.
- Property - Even with the best application, if a property is highly undesirable it may contribute to creating a high risk application. Some lenders are very specific on the properties they will lend to. Additionally, if the insurer has negative history with the property, it may not be able to be default loan insured. Select a property that is going to be a good financial investment and therefore low risk to the lender or insurer.
Still not sure why you're not qualifying? Give me a call and I'd be happy to help you create a plan to qualify for a mortgage in the future.
Sarah Nixon-Miller, Mortgage Broker
Toll-free Canada 1-844-315-6609
sarahnm@mortgagegroup.com