Why the BANK said NO

So you’ve done everything outlined in ‘tips to get the bank to say yes’ and you’re patiently waiting to get the call/e-mail about your approval. Then that day arrives but instead of approval, you receive the dreaded denial notification. I know it is a stressful situation to be in, especially when there is an accepted offer. This situation is more common than you think, it has happened to me, my first mortgage application was turned away, dismissed, and flat-out rejected. I've been self-employed for the vast majority of my career. It comes with many benefits, but qualifying for a conventional mortgage is not one of them.

Why you ask?

Think about it in the eyes of the lender. If you were to lend out money for a long period of time, would you rather lend it to an individual with a consistent and verifiable income or someone who has a fluctuating and less secure income source? Obviously the former.

I can't blame the institutions for their underwriting standards. Remember at the end of the day, they answer to their shareholders and not to you as the consumer. You are merely a means to an end for them, you are their profit.

If you find your application for a mortgage being dismissed, it may have nothing to do with your income. Instead, it could be something as simple as the source you are utilizing to obtain the mortgage (broker vs bank), or something a bit more complex like your TDS and GDS ratios.

Here are three mistakes I see people making when applying for a mortgage (in no particular order):

Mistake #1 ❌ Using a bank’s mortgage advisor instead of a mortgage broker.

Lesson #1 ✍ Mortgage brokers are generally self employed individuals who earn their income based on their ability to qualify you for a mortgage. They tend to have relationships with a variety of institutions (A, B, C lenders) and can shop you (your application) around to get your the most favourable deal. Bank mortgage advisors, as far as I know, will only offer you products (mortgage rates/terms) that their institution provides. Why on earth would they offer you products from their competitors? Secondly, speaking generally, bank individuals are employees and their income (salaried) for the most part, is not derived from finding you the best deal.

Mistake #2 ❌ Chasing the lowest interest rate

Lesson #2 ✍ Understand the terms of a mortgage can be more important than the actual interest rate. Sure, having a low rate is favourable. However, I would argue that the length (the term) of the loan, the amortization, the structure (variable vs fixed) and the frills (prepayment, double up payment, max yearly payment allowance) are more important than the actual interest rate. Life has the ability to throw curveballs at you at the least opportune time and having the ability to break a mortgage affordably because it’s a variable structure than a fixed one can save you A LOT more than the measly 1% interest rate difference.

Mistake #3 ❌ Focusing on your income instead of minimizing your DEBT

Lesson #3 ✍ Lenders typically use two ratios to help their analysis of your ability to repay the loan. They are called the gross debt service (GDS) and the total debt service (TDS). Simply put

Gross Debt Service Formula: Adding up the Principal + Interest + Taxes + Heat and dividing it by your Gross Annual Income

Total Debt Service Ratio Formula: Adding up the Principal + Interest + Taxes + Heat + Other Debt Obligations and dividing it by your Gross Annual Income

Debt Service Ratios: Canadian Mortgage and Housing Corporation(CMHC )restricts debt service ratios to 39% (GDS) and 44% (TDS).

For Example, let’s say your:

Principal Payment is $1000/month

Interest is $300/month

Property Taxes: $300/month

Heat: $150/month

Other Debt Obligations (Car loan /Student loan/Credit Card payment): $700/month

Income: $5000/month

Your GDS is 35%, and your TDS is 49%. Here’s the kicker: it’s your “other debt obligations” that are the problem. If you manage to cut those payments in half, your TDS drops to 42%, potentially getting you closer to approval.

Bouncing Back After Rejection

If your mortgage application is denied, don’t panic—there are still options. Consider alternative lenders like credit unions or private lenders, who may have more flexible criteria. You can also work on improving your financial standing by paying down debt or saving a larger down payment.

Lastly, consider consulting with a mortgage broker who can guide you through the options tailored to your specific situation. Don’t be afraid to explore every avenue to turn that “No” into a “Yes.”

If you're interested in learning more about getting your financial house in order and how to set up your financial life, please register for the live beginner course or the recorded beginner course.