Did your mortgage application get denied? Here’s what you can do

If you've found the perfect home, learning that your mortgage application was denied can be deflating. But you should know that being denied is more common than you may think, and it doesn't mean you won't be able to get approved next time. 

Common reasons your mortgage application was denied 

There are many reasons why your mortgage application may have been rejected, and every lender has different lending criteria to meet. The most common reasons are: 

• Your work history: Prime mortgage lenders like to see that you have stable employment and a steady income. If you've switched careers lately, or you have a history of jumping from job to job within a short period of time, you may also look like a risk in the eyes of lenders
• Credit score and report issues: If you've been shopping around for a mortgage, you'll know your credit score is exceptionally important when getting a mortgage approval. Lenders like to see that you're responsible with credit. If your credit score is below 660, it may be challenging to get approved by some lenders
• High debt ratios: Your overall debt ratios are the amount of debt relative to your income, including your future mortgage payments. It's calculated by how much you pay each month to cover your existing debts.

What to do if your mortgage application is denied 

The more you know about why your mortgage application wasn't approved, the better. That way, you can make changes to improve your chances for next time. 

Ask for closure—and find out why 

The mortgage approval process is a rigorous one, which you’ll likely put a lot of time and effort into. Your mortgage advisor should be honest with you and indicate whether you'll be approved or not, and, if the latter, the reasons you were denied so that you can make improvements and apply again. 

Take a look at your credit score and credit report with a fine-tooth comb

Check that your credit score is in good standing before you apply for a mortgage again. Make your payments on time and keep an eye on your credit utilization (how much credit you're using out of what's available to you) to improve your credit score. 

Check your credit report for any concerns that could also be dragging your credit score down, like missed payments that were sent to collections without your knowledge. And if you happen to find any discrepancies in your report, you can always contact Equifax or Transunion to have them corrected. 

If you can, pay down debt 

Even if you have a great credit score, lenders are also interested in what debts you have, such as credit card debt, student loans and car payments. As mentioned above, lenders compare this to your income and expenses, known as your debt ratios. 

When it comes to applying for a mortgage, two of the factors that lenders look at when determining how much home you can afford: your gross debt service (GDS) ratio and your total debt service ratio (TDS).

Your GDS is how much of your gross income is used for your housing costs, while your TDS adds other debt you have (like credit cards, student debt, child support, etc.) into the equation. 

Generally, a GDS and TDS of less than 39% and 44%, respectively, is the ideal range to have to get a mortgage. So paying down existing debts will help you lower your debt ratios, which could help you get approved in the future. 

You can start by looking at your most expensive debts (often credit card debt, which many Canadians carry) and making a plan to pay them down. 

Play the field 

If you've ever been on a first date and had a great time only to be rejected, you'll know it stings—but you wouldn't simply stop dating altogether. The same is true with your mortgage application. Every lender has different qualification criteria, and some are more lenient than others.

Play the field and shop around, but keep in mind that when a lender checks your credit, it will result in a hard credit inquiry. Hard credit inquiries slightly lower your credit score unless you complete your rate shopping within a two-week period. 

Whenever you're ready to apply (again) for a mortgage, Pine can help you along the way and answer any and all of your questions. m