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Saving for a home in Canada is like a long-lost dream only a few people get to fulfill.
Furthermore, the rates are only rising due to inflation and the economy's ongoing change, making it even more unrealistic for most people.
But because these circumstances are a fact of life, one cannot merely give up on the goal of owning a house.
What is the best fix you can think of? Taking out a mortgage!
Sadly, when things are already going south for you, the bank might also reject your mortgage application.
So, what would you do? Ditch the idea of buying a home? Absolutely not!
You must find the reasons why it was rejected! Then, simply fix them and secure the financing at better rates. Tricky much? We are here to help!
Here you go:
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To answer simply: Yes! A bank can definitely reject your mortgage application. In fact, it’s not that uncommon to happen.
And when that happens, the situation can really crush your hopes of ever owning your house. But don’t feel dejected!
You can definitely improve your chances if you know what caused your loan to get rejected.
There might be endless reasons why your loan request was denied. To name a few:
Banks and other typical lenders follow definite rules to grant you a loan or reject the funding.
In addition, they also look at certain factors to decide the score of your mortgage application.
Let’s review some factors and the reasons that could cause your mortgage to get rejected:
Your credit score is one of the main reasons why your mortgage application might get rejected.
Of course, the minimum credit score range required for a mortgage loan might vary depending on the lender, bank, and the type of loan you’re applying for.
In fact, if you’re going for a federal-backed funding program, the eligibility credit score might be even higher.
Improving your credit score should be the first thing you should do if your score range doesn’t fall within the mortgage eligibility criteria.
See: Click to read 17 questions about credit score, report, & history!
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Credit history is as important as your credit score when it comes to the reasoning for loan rejection.
The banks consider good credit files to score your application. And, you might get declined for financing due to your poor or thin credit file.
Here watch a video to understand the concept of a thin credit file:
It simply implies having zero or minimal credit history, which means the bank won’t have enough information about your credit.
Thus, your responsible and repayment score is low (reason for loan rejection).
Another primary reason could be the percentage of your total income that goes to clear your debt bills.
For instance, if your mortgage payment might exceed 28% or 31% of your total income, it will signal to the bank that you can’t afford the loan.
See: Top Side Hustle Ideas To Increase Your Income!
However, one thing to understand here is that even with your minimum DTI, the bank might still reject your loan. The reasons could be:
Of course, there could be many more, but the key is to understand that these income factors affect your loan approval chances.
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If you have put up a property as mortgage collateral, it might become a reason for your loan rejection.
The lender may take into account the followings:
The lenders usually judge your assets if they are enough to cover the interest, loan period, timely payments, etc.
Usually, some lenders avoid certain properties that don’t have much market value.
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Is it hard to fulfill the traditional loan requirements? Try looking for alternative lending options as they provide flexible terms to consumers and are easier to get than a typical bank loan. |
It can be categorized into two sections: 1. The Source 2. The Amount.
For example, if you borrowed money from a friend, family, or parent's line of credit.
The lenders will take it as a debt and might reject the funds (or the loan).
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Don’t have enough funds for the down payment? Click to find 6 helpful ways to make money online and start saving now for the initial upfront payment! |
So, the bank can reject your loan if you don’t have enough money for the initial payment.
Next, you might want to know how much you need for a down payment? Here’s a video to answer that:
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Do you currently have a high-wage job? Good for you! But that might not be enough for your lenders! Yes! You read it right. There’s more to the story!
See: Learn To Improve Your Financial Literacy!
Every bank and lender may have specific requirements, but generally, they attempt to determine the steadiness of your wages and employment.
They might do so to score your loan application.
And, if the employment factors are unsatisfactory, they can reject your application.
Everything that has something to do with your credit is important for your mortgage application!
If you have a credit report full of errors, it will only smash your credit history and the trust of the lenders!
See: 7 Credit Report Errors That Might Be Ruining Your Credit history!
Moreover, your loan application can also be rejected if you have negative inquiries on your credit report.
As you might know, some soft and hard checks remain on the credit report for several years, making it difficult for lenders to trust you.
Hence, it is important to check your Equifax credit report every year to ensure at least an error is not the cause for your loan rejection.
Yes! The lender or bank might also check the records of your previous tax payments to analyze how well you have been managing your money.
See: Steps To Take Now For An Easy Tax-Filing!
In fact, it can stain your credit report if you fail to solve the unpaid tax issue and the government takes legal action against you.
Moreover, it will only earn you negative points and lower your chance of getting a loan.
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The higher your repayment score, the higher your chances of getting the loan!
If the lender or bank senses that your employment, income, and savings are insufficient to complete the loan terms, you won’t get the finances.
Don Rafner explains in his article that lenders will review your savings accounts money to ensure you have the funds to repay the loan.
In fact, lenders will see your depository accounts and bank statements to analyze your financial value.
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Do You Want To Increase Money In Your Savings Account? Stick to an efficient budget, do a personal financial review twice a year, connect with your financial advisor, and increase your financial knowledge! |
Being knowledgeable is the best thing you can do to increase your financial literacy.
In fact, it can help you better understand situations and find ways to fix the issues.
Learning the reasons why your mortgage was rejected falls into the same category!
You have to know the problems to find solutions for them. Wondering how to do that? Give this guide a read and find answers to all your mortgage rejection queries!