5 Common Reasons Your Mortgage Isn’t Approved

October 7, 2021

Getting a mortgage pre-approval is one of the most important steps to becoming a homeowner. Once you have your pre-approval in place, it might feel like you’re all set to go with your mortgage funding. While it definitely puts you on the right path, your mortgage isn’t approved just because you have that pre-approval. It’s important to keep your situation the same after you’ve been pre-approved so you can actually get that mortgage funding when the time comes. After all, you don’t want to end up in a situation where you can’t get the mortgage funding you were expecting. Here are five reasons your mortgage might not be approved!

#1 Your employment has changed

A change in your employment could cause some issues with your mortgage approval, especially if it results in a lower income. Remember that your pre-approval was based on your situation at that time, which included how much money you make. It’s crucial to keep your financial situation the same. Getting a new job with a new income could impact your mortgage approval, because this isn’t the income the lender based your pre-approval on. Lenders want to be sure you can handle monthly mortgage payments, and that you have the income to support the mortgage you’re approved for. 

#2 Your credit score has dropped

Having a perfect credit score isn’t everything in terms of securing a mortgage. People with average credit scores can often still receive mortgage funding. However, after a lender pre-approves you, they know what your credit score was. If it suffers a sudden drop, this will raise concerns. A decrease in your score might imply you’ve had trouble making payments, and will also have issues with your future mortgage payments. Do your best to keep your credit score the same, or even improve it. In general, credit scores of 650 and above are considered good.

#3 You’ve taken on additional debts

Of course, your mortgage is going to be a significant source of debt. Lenders generally don’t want to see you’ve taken on other large debts before they approve you for a mortgage, because the expectation is your mortgage payments will have to take up a good chunk of your available credit. If you take on a car loan, for example, that will cut into the credit you have to pay for your mortgage. In a lender’s mind, this reduces the certainty that you can still make your mortgage payments, since these extra debts weren’t present when you were pre-approved. Lenders have no proof that you can handle more debt, and this is a common reason a mortgage isn’t approved.

#4 There are issues with your paperwork

Paperwork problems are avoidable, but still common. This is potentially the most frustrating barrier between you and your mortgage, because it’s preventable in most cases. If there are any mistakes in your documentation, this could cause a lender to reject your mortgage application. You don’t want to go through the process of being pre-approved only to find out missing or incorrect information is going to stop you from your mortgage approval. Be sure to comb through all your documents very carefully so you can be certain there are no errors.

#5 The home’s appraised value is below purchase price

If your mortgage isn’t approved, it could be a result of issues with an appraisal. An appraisal is an unbiased evaluation of a home, and the appraiser tells a lender how much the home is worth. In a seller’s market, homes often sell over asking price, which could become an issue in terms of mortgage financing. Lenders base their loans on the appraised value, not the purchase price. This means if you purchase a home for a higher amount than the appraised value, the lender will likely not finance whatever extra amount is left over. This leaves you as a buyer with a certain amount of money you need to finance yourself. For many buyers, this results in the inability to afford the home.

How can you avoid these problems?

The key to securing your mortgage approval is to first get pre-approved. This helps you know what you can afford, and the kind of mortgage funding you might qualify for. It also lets you know what you must do to keep your situation the same, or make it better, before applying for your mortgage funding. Don’t take on any extra debts or make big purchases if you don’t have to. If necessary, work towards increasing your credit score. Overall, remember a pre-approval is not a guarantee of a mortgage, so it’s important not to let your guard down after you’ve been pre-approved.

If you have any questions about securing your mortgage, I’m just a phone call or email away. Feel free to contact me anytime, either by booking a call directly via my calendar below, or getting in touch with me here.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.