My Bank Declined My Mortgage in Canada. What Do I Do Now?

A decline means your file did not fit that lender's criteria as submitted. Here is how to find out what failed, and which category of lender actually fits.

A mortgage decline from your bank does not necessarily mean that you cannot get a mortgage.

It means that your application did not fit that lender's approval criteria in the form in which it was submitted.

That distinction matters.

The wrong reaction after a decline is to send the same application to five more lenders without first understanding why it failed.

The useful question is:

Once that is understood, it becomes much easier to determine whether the answer is another bank, a different mortgage program, an alternative lender, temporary private financing, or simply correcting something before applying again.

Why did my bank decline my mortgage?

There are many possible reasons.

Your income did not qualify the way you expected

This is especially common with:

• self-employed borrowers;
• business owners;
• commission income;
• bonuses or overtime;
• recently changed employment;
• income earned outside Canada;
• corporate income that does not appear as personal taxable income;
• rental income;
• multiple sources of income.

A borrower may earn enough money economically but still fail the lender's particular income calculation.

For a business owner, for example, the important question may not simply be how much income appeared on line 15000 of the personal tax return.

The full picture can involve salary, dividends, corporate financial statements, retained earnings, ownership percentage and the stability of the business.

That does not mean every lender will recognize more income.

It means different lenders can analyze the same self-employed borrower differently.

Your debt ratios were too high

A bank may conclude that too much of your income is already committed to:

• mortgages;
• car loans;
• lines of credit;
• credit cards;
• support payments;
• property taxes;
• condo fees;
• other financed properties.

The solution is not always a larger down payment.

Sometimes a debt can be paid out.

Sometimes another lender treats a particular liability differently.

Sometimes the requested mortgage amount simply needs to change.

Your credit profile did not fit

A decline can result from more than the credit score itself.

The lender may also be concerned about:

• recent late payments;
• collections;
• consumer proposals;
• bankruptcy history;
• high revolving balances;
• repeated credit inquiries;
• mortgage arrears;
• a short credit history;
• unresolved reporting errors.

A borrower with imperfect credit is not automatically limited to private financing.

The seriousness, age and explanation of the credit issue matter.

You owe income tax

CRA or Revenu Québec debt can materially affect a mortgage application.

Depending on the lender and the file, the tax balance may need to be paid before closing, paid from the refinance proceeds, or dealt with through another acceptable structure.

Ignoring it usually makes the file harder.

Knowing about it early makes the mortgage strategy much easier to design.

The property is the problem

Sometimes the borrower qualifies but the property does not.

Examples can include:

• unusual construction;
• mixed residential and commercial use;
• significant deferred maintenance;
• very small units;
• rural or remote property;
• non-conforming additions;
• environmental issues;
• properties with rental characteristics outside the lender's normal program;
• an appraisal that comes in below the purchase price.

Changing lenders can help when the issue is policy-specific, but not every property problem can be solved by changing banks.

The mortgage amount or transaction does not fit that lender

Banks have their own appetite.

One institution may be comfortable with a particular loan size, property type or borrower profile while another is not.

The decline can therefore be a lender-fit problem rather than a bad-borrower problem.

RBC, TD, BMO, National Bank or Desjardins declined me. Does that mean another bank will too?

No.

It also does not mean another bank will approve you.

The important point is that these institutions do not all use identical underwriting policies.

A decline should be treated as information.

Before submitting elsewhere, I want to know:

1. What reason did the bank give?
2. What income did it actually use?
3. What debts did it include?
4. What did the credit report show?
5. Was there a problem with the property?
6. Was the application declined by an automated rule, an underwriter, or a specific bank policy?
7. Can the problem be documented differently without changing the facts?

Those answers determine the next move.

Will an alternative lender approve me?

Possibly.

Alternative lenders can be useful when the borrower is financially viable but does not fit conventional bank underwriting.

Examples include:

• stronger real income than taxable income;
• recent credit issues;
• higher debt ratios;
• unusual properties;
• short-term situations that should improve;
• tax issues being resolved;
• a need to refinance and restructure debt.

Alternative financing usually costs more than prime bank financing.

The question is therefore not simply whether an alternative lender will approve the mortgage.

The question is whether the additional cost solves a real problem and whether there is a credible route back to lower-cost financing.

Do I need a private mortgage?

Not necessarily.

Private lending should not be the automatic next step simply because a bank declined you.

It can make sense when speed, property condition, severe credit issues or another temporary problem makes institutional financing unavailable.

But private financing is generally more expensive and should usually have a clear purpose and exit strategy.

If the file can reasonably be placed with an institutional alternative lender instead, that should be examined first.

What should I send for a second review?

You do not need to rebuild the mortgage application from scratch before asking for another opinion.

Useful information includes:

• the bank's decline reason, if one was provided;
• the application or mortgage amount requested;
• your income situation;
• whether you are salaried or self-employed;
• current debts;
• approximate credit situation;
• the property involved;
• any tax balance;
• the intended down payment or available equity.

If the bank already collected documents, those documents can often tell us exactly where the problem occurred. How that review works is described in how I review a declined file.

What if the bank did not explain the decline?

That happens.

A useful second review can often reconstruct the likely problem by examining the same facts the lender saw.

The objective is not to criticize the bank.

The objective is to understand its decision well enough to know whether another financing route makes sense.

A decline is not a mortgage strategy

Do not let one bank's answer automatically push you into the most expensive financing available.

First determine what failed.

Then determine which category of lender actually fits the file.

Sometimes another bank is the answer.

Sometimes it is an alternative lender.

Sometimes temporary private financing is justified.

And sometimes the correct advice is to fix the underlying issue and apply later.

The important part is knowing which situation you are actually in. If the decline came from the U.S. side of your Canadian bank for a property in the United States, that is a different situation, covered at my Canadian bank's U.S. division declined my mortgage.