Most mortgage declines are not surprises to the people who caused them. They are the result of an application that was submitted without being fully reviewed first. Experienced agents decline files themselves before an underwriter has to — they read the docs, spot the gaps, and either fix them or send to the right lender for where the file actually sits. Here are the most common reasons files get declined in Canada and what to do about each one before you hit submit.
1. Insufficient or unverifiable income
Income is the most common source of decline. This does not mean the borrower does not earn enough — it means the income they earn cannot be verified in a way the lender accepts. Common examples include: commission or bonus income that has only been earned for one year, self-employed income that is claimed at a lower level on the tax return than what the borrower actually spends, and rental income that is not supported by a lease or T776.
What to do: Get the last two years of T4s, NOAs, and T1 generals before you submit anything. For self-employed borrowers, confirm whether you need stated income (B-lender) or traditional income (T1 declared). Do the debt ratio math with the actual documented income — not what the client tells you verbally. If it does not work on paper, it will not work at the lender.
2. Credit score below the lender's minimum
Every lender has a minimum beacon score. For insured A-lender products, that floor is 600 from CMHC and most insurers. Many A-lenders require 640 or 650. Some require 680 for their best rates. A file declined for score is not a surprise — it is the result of not checking the bureau before choosing a lender.
What to do: Pull both Equifax and TransUnion at intake. Use the lower score to select your lender. If the score is 620, do not submit to an A-lender requiring 650. Send it to a B-lender or start a credit improvement plan and revisit in 6–12 months. Know your lender's score minimums before you send a single file.
3. Debt ratios exceed guidelines
Gross Debt Service (GDS) and Total Debt Service (TDS) ratios are calculated at the stress test rate under B-20 — not the contract rate. For an insured mortgage, the stress test rate is the greater of 5.25% or the contract rate plus 2%. This catches a lot of clients who believe they can afford the payment they have been quoted.
Example: Client has a $600,000 purchase. 5% down, 25-year amortization. Contract rate is 4.50%. Stress test rate = 6.50%. Monthly payment at stress test = $4,066. If gross monthly income is $9,500: TDS = ~52%. Most insured lenders cap TDS at 44%. The file fails the stress test even though the real payment is manageable.
What to do: Run the stress test numbers manually before every submission. If TDS is over 44%, consider a larger down payment, a lower purchase price, or adding income. Some B-lenders allow TDS up to 50%. For files close to the edge, confirm the lender's specific TDS limit before submitting.
4. Derogatory credit history in the last 24 months
A score of 690 with three missed payments in the last 18 months will decline at most A-lenders. The score and the history tell different parts of the story. Underwriters look at both. Recent lates, collections, or NSF patterns signal financial instability regardless of where the score currently sits.
What to do: Read the full credit report, not just the score. Note any R2s, R3s, collections, or derogatory remarks. If there is recent derogatory history, flag it in your submission notes with an explanation — a temporary job loss, a medical event, a divorce — and match the file to a lender who has room for explanation letters. B-lenders assess character as part of their decision. A-lenders generally do not.
5. Property issues
Some properties simply do not qualify for certain products. Common property-related declines include: condos under 600 sq ft, properties on leasehold land, rural properties beyond a lender's market area, properties with active structural problems or environmental contamination, and properties with basement suites that are not legal according to municipal records.
What to do: Know the property before you know the lender. Ask the realtor for the listing details and flag any unusual characteristics at intake. If the client wants a legal basement suite considered for rental income, confirm the city has an active permit on record. For rural properties, confirm which lenders will lend in that postal code before you submit.
6. Source of down payment not provable
For insured mortgages, CMHC and other insurers require the down payment to come from a verifiable, non-borrowed source. The lender needs 90-day bank history showing the funds have been in the account or tracking the trail clearly — sale of a previous home, RRSP withdrawal under the First Home Buyers' Plan, gift from a direct family member with a signed gift letter.
What to do: Get the 90-day bank history at intake. If there are large deposits, trace them before the lender does. A $40,000 deposit three weeks before application with no explanation is a problem. Cash is not a verifiable source. Money from a family member structured as a loan is not a valid gift — the gift letter must state no repayment is required.
7. Income-property ratio too high for the market
Some A-lenders apply an affordability override — if the purchase price relative to gross income is very high, they may decline even if the debt ratios technically pass. A household earning $95,000 trying to buy a $1.4 million property in a high-cost market may hit this ceiling at certain lenders.
What to do: Know which lenders apply income-to-property overlays and which do not. Some monoline lenders and certain bank channels are more flexible here. If the ratio is stretched, look at the full lender matrix before submitting to the first lender on your list.
8. Incomplete documentation at submission
Files get declined or stalled because the agent submitted an incomplete package — missing a Notice of Assessment, missing the MLS listing, missing the purchase and sale agreement, or missing a void cheque. Underwriters flag missing items and may decline before even reviewing the merit of the file.
What to do: Build a standard document checklist and go through it on every file before submission. Full income docs, full credit, full property docs, proof of down payment, ID. Submit everything at once. Incomplete files waste your time, the underwriter's time, and damage your relationship with the lending partner.
Want to go deeper on this?
Our Mortgage Underwriting course covers the full file review process — from intake to submission — with real decline scenarios and how to fix them.
See courses