Why Is My Mortgage Application Declined?

Published: October 7, 2020 Last updated: January 6, 2021 at 6:13 am

Mortgage Fails: The Top Reasons Why You May Not Qualify For a Mortgage

People are often surprised when they submit a mortgage application and the lender says “No”. They believe they can afford the purchase or the monthly payments, so the declined application doesn’t seem to make sense.

Lenders, however, have a responsibility to their shareholders and to those who’ve entrusted them with funds to adhere to underwriting guidelines that safeguard everyone against undue risk. That means they need to assess the probability you will be able to pay your mortgage each and every month. The last thing they want is that you end up in default and they have to foreclose.

So, we thought it would be helpful to borrowers to understand the risk factors that worry lenders, and have compiled a checklist of the top 10 reasons your mortgage application might not be approved. To jump directly to an explanation, click on the reason from the list below:

Top 10 Mortgage Fails

  1. You Don’t Make Enough Income
  2. You Are Self-Employed
  3. You Are A Part-Time Employee
  4. You Earn Commission Income
  5. Unstable Employment
  6. Nasty Stuff In Your Credit History
  7. Last Minute Life Changes
  8. The Property Fails An Inspection Or Appraisal
  9. You Don’t Have Enough Down Payment
  10. You Did Not Set Aside Sufficient $$ For Closing Costs
    1. You Don’t Make Enough Income

    2. Mortgage lenders and their insurers have very strict guidelines as to how much mortgage you can be approved to carry. Often people’s eyes are bigger than their stomach!

      There is also this little thing called The Mortgage Stress Test which determines your borrowing power. You should understand this term and how it impacts your mortgage application.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    3. You Are Self Employed

    4. If you are self-employed, chances are you are able to reduce your gross income with business expenses when you file your income tax returns. But A-lenders are going to look at your taxes to decide how much to lend you.

      Your dilemma becomes do you pay more taxes and qualify for best mortgage terms, or do you keep taxes payable to a minimum and pay a little bit more each month on your mortgage payment.

      Self employed applicants are encouraged to have all their documents reviewed ahead of proceeding with making an offer. This list includes:

      • Two years personal and corporate tax returns and Notices of Assessment
      • Six months business bank statements
      • Articles of incorporation or Master Business license (if you are a sole proprietor)

      (Back to Top 10 Mortgage Fails List) ⬆︎

    5. You Are a Part Time Employee

    6. A mortgage A-lender won’t want to include part-time income on your mortgage application unless you have been at the same position more than two years. And then they will calculate your average part time earnings and use this number to determine your borrowing power.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    7. You Earn Commission Income

    8. If you earn commission your income is variable and unpredictable. Mortgage A-lenders will want to see you have been doing this for at least two years and will take an average of the NET income reported on your tax returns.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    9. Unstable Employment

    10. If you frequently change jobs or are so new to your current position that you are still on probation, these are red flags to a mortgage lender. In fact, in many cases, you can fuggedabout it if you are on probation, although strong applicants who have moved to a better opportunity in the same industry can be alright.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    11. Nasty Stuff in Your Credit History

    12. You really should check your personal credit history at Equifax once or twice a year. And for sure if you are planning on buying or refinancing a home.

      If your credit history is messy with late payments, unpaid collection items, or wrong information, you could be declined by A-lenders. Checking in advance gives you a chance to clean it up before you buy.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    13. Last Minute Life Changes

    14. You’d be surprised how many people make significant changes in their lives just before they buy. And often it is after they have been pre-approved!

      They think the lenders won’t check things again I guess – but that is wrong.

      • Some people quit work and go back to school
      • Some people change jobs
      • Some people go from salaried to self-employed
      • Some people dispute an item on a credit card and refuse to pay
      • Some people take out a new car loan or lease

      (Back to Top 10 Mortgage Fails List) ⬆︎

    15. The Property Fails an Inspection or Appraisal

    16. Even if you are a perfect mortgage candidate, this does not guarantee you a mortgage no matter what. The property has to meet certain standards to satisfy your lender. There could be:

      • Structural issues with the house
      • Wiring and plumbing could be dangerous
      • Some combination of septic tank, well water and oil heating might worry certain lenders
      • The house could be a former cannabis grow operation for marijuana plants
      • The house could be in a very bad state of repair and need a lot of money to bring it up to speed

      (Back to Top 10 Mortgage Fails List) ⬆︎

    17. You Don’t Have Enough Down Payment

    18. Yes, the rules say 5% is the minimum down payment if your purchase price is less than $500,000, but this does not mean you will qualify for a mortgage just because you have the absolute minimum.

      When you have less than 20% down payment, the maximum amortization period you can choose is 25 years – this means the monthly payments will be higher than you might expect – and your debt service ratios may be too high.

      (Back to Top 10 Mortgage Fails List) ⬆︎

    19. You Did Not Set Aside $$ For Closing Costs

    20. Closing costs add up – especially on higher priced homes and inside Toronto city limits. That’s because land transfer taxes are higher, the more expensive your home, and because Toronto also charges a husky municipal land transfer tax.

      Mortgage lenders have no sense of humor if you cannot prove you have set aside at least 1.5% of your purchase price to cover your closing costs.

      (Back to Top 10 Mortgage Fails List) ⬆︎



      These are the primary reasons why your mortgage application might fail. It is always wise to prepare in advance, and provide all your information and documents to a trusted mortgage professional and have them assessed ahead of the mad rush which occurs if you have an accepted offer to purchase a property. In other words, you should seek out a No form found.

      If you find yourself declined unexpectedly, there may be hope to gain approval from an alternative B-lender.


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      ​Ross Taylor
      One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents

      Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column ​ in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.

      With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.

      If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.

      ​For more information, visit About Ross Taylor.