What to Do When Your Mortgage Application is Denied


So, you’ve applied for a mortgage and eagerly started looking for your dream home, but then you get the dreaded news: Your mortgage application has been denied. It’s a tough spot to be in—I get it. But the good news is that all hope is not lost just yet. Rejection happens for various reasons, and there are different steps you can take to turn this setback into the outcome you hope for.

Reasons for a Mortgage Refusal

Mortgage application denial occurs for many different reasons, including:

Poor Credit or Lack of Credit History

Your credit score plays a significant role in determining your mortgage eligibility because it reflects your history and ongoing ability to manage debts. A low credit score might signal past financial issues, missed payments, or high credit card balances, which makes lenders hesitant to approve your application.

Unstable Employment

Lenders need the reassurance that you have a stable income to meet your mortgage payments. If you have a history of frequent job changes, periods of unemployment, or irregular income, it might raise concerns.

High Debt-to-Income Ratio

Your debt-to-income ratio measures the amount of your gross monthly income that goes towards paying your debts, expressed as a percentage. If this ratio is high, it can indicate to lenders that a significant portion of your income is already tied up, making it challenging to take on more financial obligations like a mortgage. 

Insufficient Down Payment

Some lenders may have preferences when it comes to your down payment amount. If your down payment is less than their required percentage, it could lead to a denial. In general, lenders associate higher down payments with financial stability. So, if you can’t meet the minimum requirement, it may lead to questions about how you’ll handle financial responsibilities. 

Failing the Mortgage Stress Test

When applying for a mortgage in Canada, you’ll undergo a mortgage stress test as part of the process. This test evaluates whether you can afford mortgage payments if interest rates rise or your financial situation changes. Interest rate changes are often inevitable throughout your loan’s lifetime, so the stress test ensures you can handle an increase and still fulfill your obligations.

What to Do If You Get Denied

Similar to how there might be a few reasons for your mortgage application getting denied, these are some different approaches you can take to secure approval:

Improve Your Credit Score

You can start by getting a copy of your credit report to identify any errors or negative marks impacting your score. If you notice inaccuracies, dispute them. Then, consider adopting new practices in your day-to-day life to improve your credit. This can include making timely payments, reducing credit card balances, and avoiding opening new lines of credit. Keep in mind that while building a good credit history takes time, the smallest improvements can still speak volumes for your creditworthiness.

Pay Down Your Debt

Reducing your debt can help improve your debt-to-income ratio, signalling to lenders that you can take on additional financial obligations, like a mortgage. Start by focusing on high-interest debts, and consider creating a plan to pay off credit card balances, personal loans, or any outstanding lines of credit. You can also explore debt consolidation options to alleviate your financial burden and positively impact your debt-to-income ratio.

Make a Larger Down Payment

If a lender denies your mortgage application due to insufficient down payment, look into how you might put together a strategy for increasing the amount. Keep in mind that this might mean delaying your home purchase while you save up for a larger sum.

Speak to Your Mortgage Broker

Reaching out to a mortgage broker can help make the process more seamless. These professionals can provide personalized advice and strategies based on your specific situation. They can help you understand the reasons for denial and guide you towards alternatives for reapplication. Such alternatives may include private lenders with more flexible terms or specialized programs.

How I Can Help

The mortgage world can feel overwhelming, especially when faced with rejection, whether you’re a first-time applicant or a long-time homeowner. That’s why I’m here to offer my expertise and support. With connections to a vast network of lenders, I can do the heavy lifting of finding different mortgage options tailored to your unique situation. With my support, you can get your homeownership journey back on track. Reach out to me today—your dream home might be closer than you think!

andrew thake about

About Andrew Thake

Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.

Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.

Why not make your mortgage experience a comfortable one?

Book an Appointment