A strong mortgage application relies on the Borrower’s credit score, verified income, down payment, and collateral. When one or more of these things are below standard, Lenders are more likely to reject mortgage applications. The best way a Borrower can prepare a strong application is through an experienced and qualified Mortgage Broker.
This article outlines common reasons why mortgage applications are denied, and what steps you can take to better prepare a winning application.
Reasons Why a Mortgage Application May Be Denied
Property is Not Approved as Collateral
Simply put, this means the Lender does not believe the property the Borrower wishes to buy is appropriately valued or marketable. This can feel frustrating, but Lenders sometimes have more information than Borrowers. Perhaps the property formerly housed criminal activity or suffered structural damage, or maybe the land will be re-zoned. In the case of condominiums, sometimes a Lender will learn of issues within the condo corporation, such as poorly funded reserves. In many cases, Borrowers go on to find and purchase a more suitable home mortgaged through the same Lender.
However, sometimes Borrowers are committed to purchasing a property even after a Lender rejects the collateral. Perhaps the structure has sentimental meaning, or the Borrowers believe a major renovation can bring the house to a livable standard. For those who hope to buy an extreme fixer-upper, mortgages are usually out of the question. However, Lisa McInnes of Verico Paragon Mortgage Inc can help you find alternative mortgage solutions.
For those who would like to make cosmetic changes in their new home, adding an innovative product like Purchase Plus Improvements to one’s mortgage application can be a great solution! Contact Lisa today to learn more.
Borrower’s Employment is Unverified
It’s not the time to purchase a home if you’re out of work. Lenders rarely provide mortgages to Borrowers who cannot verify their employment. Your mortgage application may also be denied if you are still in the probationary period of a new job.
People Also Ask:
- How is income verified on a mortgage application?
- Do pregnancies affect a mortgage application?
- How many mortgages can you have in Canada?
A poor credit score is a common reason mortgages are denied. A credit score grades the Borrower’s history of making consistent payments. Lenders consider this score one of the best ways to gauge the Borrower’s ability to make payments. It is vital to maintain a good credit score by paying all debts as even missing payments on a phone bill can affect one’s mortgage eligibility.
Lack of Credit
Because late payments can wreak such havoc on one’s credit score, people often believe it’s best to avoid credit altogether. This isn’t the right move! Lack of credit also works against a Borrower as a non-existent credit score doesn’t demonstrate the Borrower’s ability to make regular payments.
While it’s easy to imagine how costly divorce can be, the biggest hindrance for divorced or separated Borrowers is the absence of a legal separation agreement. Without this notarized document, you will not be able to verify how much marital or child support you expect to receive or pay. You also won’t be able to show which partner plans to maintain ownership of existing properties.
Interested in learning more about this subject? Read How to Buy Out You Partner in a Canadian Mortgage.
Misinformation on the Mortgage Application
Lenders will decline a mortgage application if it contains untrue information. A mortgage application is a serious document and there can be legal ramifications for knowingly submitting fraudulent claims. Instead of doctoring information to make their applications seem more appealing, Borrowers must be honest with their Mortgage Brokers. Don’t feel insecure about perceived weaknesses in your history. Your Broker is there to support you through the application process and help you overcome financial barriers.
A Change in Borrower Information
It can be disheartening to be denied a mortgage after pre-approval. However, if a Borrower has added debt, spent their down payment, lost his or her job, or separated from their partner since first applying, they may no longer be eligible for a mortgage.
What to Do If Your Mortgage Application is Denied
With Lisa McInnes, it is rare for applications to be declined. In fact, in 2021 she celebrated a 100% success rate!
However, rejections do happen. When this happens, Lisa exhausts all avenues of appeal prior to breaking the bad news to the Borrower. If appeals are lost, Lisa will then deliver all feedback received from the Lender. Together, Lisa and the Borrower work together to develop an individualized plan to strengthen future applications. Effective changes often include restructuring the application to better communicate strengths, paying down debt, ensuring you have at least two forms of credit for 24 months, and avoiding credit limits and late payments. Of course, it is always a good thing to surpass probationary periods at work and/or improve one’s earnings.
With Lisa McInnes, you have a coach in your corner for however long it takes to reach mortgage approval. Now serving clients throughout Canada, working with Lisa McInnes ensures you’ll always have the right advice when you need it. Apply today!