When you are in the market for a mortgage, it is important to know the requirements for the qualification, also the reasons why you may not qualify. By understanding these reasons, you can make necessary changes and budget accordingly for the future.

Here are the top 5 reasons why you may not qualify for a mortgage:

1. Too Much Debt: This is the most common reason for mortgage disqualification. One of many measurements all lenders use is the Total Debt Servicing ratio (TDS). It calculates any form of debt, such as credit cards, lines of credit, or other loans, which lenders use to assess your eligibility. Ideally, your monthly debt payments should not exceed 42% (if your credit score is between 650-680) and 44% (if your credit score is over 680) of your gross monthly income.

PRO TIP: Reduce expenses, budget a plan, and consolidate debt when possible.

2. Poor Credit History: Credit score is another key factor in mortgage approval. Check your credit rating to determine what you qualify for before house hunting. A poor credit history poses a higher risk, making it harder to secure a mortgage loan.

PRO TIP: Improve your credit score by paying bills on time, avoiding exceeding credit card limits, or applying for multiple new cards.

3. Insufficient Assets or Income: A lack of sufficient income or assets to put towards your loan can make it challenging to qualify for a mortgage.

PRO TIP: Consider saving more money for your down payment, looking at suite income, or alternative lenders to increase your chances of approval.

4. Not Enough Down Payment: Not having enough money for a down payment is another reason for mortgage disqualification. A 20% down payment is required to avoid mortgage default insurance in Canada. You can also purchase a home with less than 20% and factor in the insurance premiums.

PRO TIP: Non-refundable gifted funds from immediate family members OR have a saving plan with government programs such as TFSA, RRSP, and Tax-Free First Home Savings Account (FHSA) if you are a first-time home buyer.

5. Inadequate Employment History: Mortgage lenders typically prefer a consistent 2-year employment history with the same line of work. Obtaining a mortgage may be more difficult if you have a limited employment history or do not have a long-term position.

PRO TIP: Stay with your current employment and do not make sudden career changes during the mortgage process.

Whether you are a first-time homebuyer or looking to move, understanding the factors that impact your mortgage application can help increase your chances of success.

If you have been denied a mortgage before, do not be discouraged. With the help of a trusted mortgage broker and some effort and patience, you can put yourself in a better position to apply again in the future. Contact me to discuss your options today.