Not everybody has their mortgage application granted as thousands of Canadians dejectedly find out each year. An approval doesn’t always come easily or quickly and there is usually a good reason or reasons why. When it comes to traditional mortgage lenders such as banks, the decision to accept or deny a request for a mortgage usually comes down to your risk assessment and your ability to pay back the loan. Below is a list of seven of the most common reasons potential Canadian homebuyers may be rejected for a mortgage.
This certainly isn’t a cash-only world anymore as credit cards, debit cards and loan are the norm. Ironically, if you are fortunate enough to be financially well off and pay for everything in cash there’s a good chance you don’t have much of a credit rating. Either way, mortgage lenders will certainly look at an applicant’s credit history to see if they’ve been able to pay their bills and if they have, if they’ve paid them in time. Those who have been prompt in their payments will benefit from a good credit score or rating and those who have been delinquent will have a lower credit rating. There are often solid reasons for missing a payment such as a family emergency, health reasons, or loss of job etc., but the banks typically don’t take these into consideration. If your credit rating is holding you back from getting a mortgage, you can always try to improve it as quickly as possible or seek an alternative lender through your local mortgage broker such as Mortgage Meister.
Most traditional mortgage lenders will also be interested in how much debt you currently carry. The amount of money you owe will usually need to be below 40 per cent TDS (Total Debt Service Ratio) of the gross annual income of the applicants. If it’s above this percentage, the chances of being turned down will increase. The ratio of debt includes regular bills such as the mortgage payment, heating costs, property taxes, credit cards and any other personal debts the applicants may have. If the lender is willing to consider an application from somebody with more than 40 per cent TDS, the interest rates will likely be higher since the risk will also be considered higher.
The applicant’s credit rating and debt ratio is often tied into their income. Potential homebuyers with high incomes usually also have low debt ratios combined with high credit scores. Simply put, if you don’t make enough money to pay the monthly mortgage payments there’s a good chance you’ll be turned down. Even applicants with good incomes may be denied because they haven’t held their current job for very long.
Proof of Income
If you have enough income to comfortably handle the monthly mortgage payments, you’ll likely have to prove it. This can usually be done with current paystubs as well as income tax records. If you happen to be self-employed or on a commission basis, it’s a good idea to use your tax records as well as any other financial documents you have that relate to your business or job.
Type of Property
Canadians may also find that the type of property they hope to buy may also have an effect on their mortgage application. Most traditional lenders may hesitate when it comes to financing investment properties, commercial ventures, condominiums, and second homes. Funding may be available for these properties, but the terms could be more stringent as they’re often viewed as bigger risks. When it comes to condos, the lender may want a guarantee that at least 70 percent of the units have been sold.
Inexperienced Mortgage Broker or Loan Officer
Many potential homebuyers are turned down because of an inexperienced mortgage broker or loan officer. Those with experience will be able to tell you how to improve your credit score and debt-to-income ratio etc. as well as organize all of the documents you need to be approved. An experienced mortgage broker also realizes the type of loan that best suits your personal situation and will properly structure it.
Didn’t Shop Around
Just because one bank or lender has turned down your mortgage application it doesn’t mean you should give up all hope. It’s recommended that you apply with other institutions if you’ve been denied. Different lenders have different guidelines and there’s a chance you may be approved elsewhere.
Get Professional Mortgage Help
If you’ve been denied a mortgage for whatever reason, be aware that alternative lenders are out there and could be willing to approve your application. There are often suitable solutions to help you out. If you’d like more information on obtaining a mortgage for your unique circumstances please contact our professional, experienced team at MortgageMeister.com