Your bank said no. But that doesn’t necessarily mean you can’t get a mortgage.
One of the most discouraging things you can hear when buying a home, refinancing or renewing your mortgage is, “Sorry, you don’t qualify.”
But here’s something many Canadians don’t realize: Just because one lender says no doesn’t mean every lender will.
After more than 30 years in the mortgage business, I’ve seen plenty of situations where a client thought they were out of options, only to discover there was another solution worth exploring.
The trick is knowing where to look.
Why Would a Bank Turn Down Your Mortgage?
There are several reasons you might be declined for a mortgage, and sometimes they have very little to do with your ability to make the payments.
Some of the most common reasons include:
- Credit problems: Missed payments, high credit card balances, collections or a past consumer proposal.
- Self-employment: You earn a good living, but your taxable income doesn’t reflect your actual cash flow.
- Too much existing debt: Car payments, credit cards and lines of credit can significantly reduce how much mortgage you qualify for.
- The mortgage stress test: You may comfortably afford the actual mortgage payment but not meet the higher qualifying rate required by the lender.
- Unusual income: Commission income, bonuses, overtime, contract work or multiple income sources can sometimes create challenges.
The important thing to understand is that a mortgage decline doesn’t always mean you can’t afford the mortgage. It may simply mean you don’t fit that particular lender’s guidelines.
Not All Mortgage Lenders Play by the Same Rules
Most people are familiar with Canada’s major banks. But the mortgage market is much bigger than that.
Depending on your situation, there may be other possibilities.
1. Traditional lenders (A lenders)
These generally offer the most competitive mortgage rates but typically have stricter credit, income and qualification requirements.
2. Alternative lenders (B lenders)
These lenders may be more flexible with credit history, self-employment income and other circumstances that don’t fit traditional banking guidelines.
Interest rates and fees are generally higher, but they can provide an option for borrowers who don’t qualify conventionally.
3. Credit unions
Some credit unions have different lending programs and underwriting guidelines that may accommodate certain borrowers who don’t qualify with a major bank.
4. Mortgage Investment Corporations (MICs) and private lenders
For homeowners with sufficient equity, these lenders may consider financing when other options aren’t available.
These mortgages typically carry higher costs and shorter terms, so they should usually be considered temporary solutions with a realistic exit strategy.
What If You Have Bad Credit?
A low credit score doesn’t automatically eliminate every mortgage option.
Perhaps you went through a divorce, lost your job, experienced an unexpected financial setback or completed a consumer proposal.
Life happens.
Lenders may consider more than your credit score. Depending on the lender and mortgage program, they may also evaluate your current income, available down payment, home equity, recent repayment history and whether your financial situation has improved.
Sometimes the solution is obtaining alternative financing now, with a plan to move to a more competitive lender as your credit recovers.
Other times, waiting a few months and improving your credit may be the better financial decision.
Self-Employed? Your Tax Return Doesn’t Always Tell the Whole Story
This is something I see regularly.
You run a successful business, generate good revenue and pay your bills on time. But when you apply for a mortgage, the bank tells you that your income isn’t high enough.
Why?
Because the income shown on your tax return may be considerably lower than the actual cash flow generated by your business.
Fortunately, some lenders offer mortgage programs designed specifically for self-employed borrowers.
Depending on the program, they may consider business financial statements, bank deposits, business income and other supporting documentation.
Being self-employed shouldn’t automatically mean giving up on homeownership.
Sometimes It’s About Restructuring, Not Borrowing More
Here’s another situation I encounter.
A homeowner has a good income and considerable equity in their home but is carrying substantial credit card and line-of-credit debt.
Those monthly payments can make qualifying for a mortgage difficult.
In some circumstances, consolidating higher-interest debts through mortgage refinancing may improve monthly cash flow and the client’s overall financial position.
Of course, refinancing isn’t always the answer. Extending debt over a longer period can increase total interest costs, and turning unsecured debt into mortgage debt puts the home at risk if payments aren’t maintained.
The numbers need to make sense both today and over the long term.
What Can a Mortgage Broker Do That Your Bank Can’t?
When you walk into a bank, you’re generally limited to that bank’s mortgage products and lending guidelines.
As a mortgage broker, I can explore financing options through multiple lenders, including traditional banks, alternative lenders, credit unions and private lenders.
That doesn’t mean every application can be approved.
But it does mean we can look beyond one institution’s requirements and determine whether another approach may work.
And sometimes, the best advice I can give is to make a few changes before applying again.
Before You Give Up, Let’s Take Another Look
Whether you’re buying your first home, refinancing, renewing your mortgage or trying to get back on your feet financially, a mortgage decline doesn’t necessarily have to be the end of the road.
After more than 30 years in this business, one thing I’ve learned is that there’s often more than one way to approach a mortgage problem.
If you’ve been turned down for a mortgage, let’s have a conversation.
I’ll review your circumstances, explain what options may be available and help you decide on the next step.
There’s no obligation, and you don’t have to make any decisions until you understand your options.
Your bank may have said no. Let’s find out whether someone else might say yes.
