Being told you don’t qualify for a mortgage is frustrating, disheartening, and often confusing. But you’re not alone. Thousands of Canadians every year face this setback due to factors like credit score issues, high debt ratios, or insufficient income. The good news? A denial is not the end — it’s a starting point. Most mortgage rejections happen because lenders need to see more financial stability, stronger credit history, or proof that you can manage debt responsibly.
In this article, I’ll show you how to understand why your application was denied and, more importantly, how to fix it. With the right strategy, discipline, and expert advice, you can improve your approval chances faster than you think. Whether your dream is to own your first condo, a family home, or investment property, this guide will give you practical, actionable steps to get your mortgage application approved.
1. Understand Why You Were Denied — Knowledge is Power
The first step to improving your approval chances is to fully understand why your mortgage application was declined. Lenders in Canada are required to explain the reasons, and asking for this feedback is crucial. It’s rarely just one factor; it’s often a combination of credit issues, debt levels, income instability, or insufficient down payment.
For example, I worked with a client in Markham who was turned down for a mortgage because their credit utilization was sitting at 92%. They didn’t realize that maxing out credit cards, even if payments are made on time, severely impacts credit scores. After reviewing their credit report together, we built a plan to reduce utilization to below 30%, and within six months, they secured approval for a mortgage they thought was out of reach.
2. Improve Your Credit Score with Smart Moves
A strong credit score is one of the most powerful tools in your mortgage application. Most lenders in Canada look for a minimum score of 680, but the higher your score, the better your rate and terms. The good news is that credit scores are not permanent; they can be improved with consistent effort.
Start by paying all your bills on time — late payments can stay on your report for up to six years. Next, focus on lowering your credit card balances to under 30% of their limits. If you have multiple cards, focus on paying down the ones with the highest balances first. Avoid applying for new credit or financing large purchases while preparing to reapply. Even small moves, like setting up automated payments, can make a huge difference. According to Equifax Canada, Canadians who consistently make on-time payments and reduce their debt can see improvements in their credit scores in as little as three to four months.
3. Reduce Your Debt-to-Income Ratio
One of the biggest red flags for lenders is a high debt-to-income ratio. In Canada, your Total Debt Service (TDS) ratio should generally be below 44%, meaning that your monthly debt payments (including the potential mortgage) should not exceed 44% of your gross monthly income. If you’re above this threshold, lenders will hesitate.
Start by aggressively paying down high-interest debt like credit cards and lines of credit. I recently worked with a couple who reduced their TDS from 49% to 41% in just six months by eliminating unnecessary spending and putting all extra income toward debt repayment. Additionally, avoid taking on new loans or car payments until after your mortgage closes. Lenders check your credit and debt load again before final approval, so it’s crucial to keep your profile clean and steady.
4. Increase Your Income or Consider a Co-Signer
Sometimes, the issue isn’t debt or credit but income. If your income doesn’t meet lender requirements for the amount you’re trying to borrow, you’ll need to make adjustments. This could mean reducing your purchase price expectations, but there are also other solutions.
Adding a co-signer — often a parent or close family member — can instantly improve your approval chances. A co-signer’s income is added to your application, reducing perceived risk for the lender. Keep in mind that co-signing is a serious commitment, and both parties should understand the legal and financial implications. Alternatively, if you’re self-employed or have inconsistent income, work with a mortgage broker who specializes in alternative lending solutions. There are lenders in Canada who are more flexible with income verification but will expect higher documentation standards.
5. Rebuild and Reapply at the Right Time
After making improvements to your credit, debt, and income situation, timing your next application is key. Don’t rush to reapply immediately. Lenders will see multiple rejections as a red flag. Instead, spend at least three to six months building a solid financial foundation before trying again.
During this time, avoid large purchases, continue making on-time payments, and ensure your savings account reflects financial stability. A larger down payment can also strengthen your application significantly. Programs like the First-Time Home Buyers’ Incentive and the RRSP Home Buyers’ Plan can help boost your down payment. Pre-approval should be your next step before house hunting. It not only shows sellers you’re serious but also gives you a realistic picture of what you can afford.
Conclusion
A mortgage denial is not the end — it’s a call to action. With the right knowledge and support, you can transform rejection into approval. By focusing on your credit score, managing debt, increasing income, and understanding lender requirements, you’ll position yourself to succeed. Don’t let one “no” stop you from becoming a homeowner. Instead, use it as fuel to build a stronger, more resilient financial future.
At The Tar Team, we help buyers like you overcome mortgage obstacles every day. We’ll guide you through the process, connect you with the right lenders, and build a personalized plan to get you approved. Contact us today, and let’s make homeownership happen for you.