Yes, mortgages can and do get declined during the underwriting stage. While pre-approval looks at high-level data, underwriters perform a deep dive, checking for changed financial situations (job loss, new debt), poor appraisals, unverified income, or insufficient funds. Approximately 9.4% of applications were denied in 2023.
So, how often does an underwriter deny a loan? In 2023, about 9.4% of all home purchase applications were denied, according to data from the Consumer Financial Protection Bureau. That means just under 1 in 10 mortgage applications didn't make it past underwriting. Denial rates vary by loan type, though.
Essentially, underwriting is for the lender to gauge the amount of risk they should take in exchange for a premium, which is the interest rate. The higher the risk, the higher the interest is likely to be. If the risk is deemed to be too high, the loan gets rejected.
Denied: If an underwriter denies your mortgage application, you'll need to understand why before deciding on next steps. There are many reasons for the denial of an application. Having too much debt, a low credit score or not being eligible for a particular loan type are some examples.
A mortgage application can be declined at almost any stage of the process – but this is highly unlikely after mortgage offer – and you can also be declined whether you're buying your first home, purchasing an investment property, moving home, or remortgaging.
There are 6 simple steps to apply for a mortgage: pre-application, initial application, assessment and affordability checks, valuation, offer, completion.
Then, the underwriter will make the final decision to approve or deny your loan application. Let's look at the intricacies of the mortgage underwriting process and how you can prepare for this important step.
In theory, if you're working with a good loan officer , there is nothing to worry about during the underwriting process . Mortgages are largely decisioned by automated tools (Automated Underwriting Systems or AUS), as long as the information your loan officer put into that system was correct, your loan will hold up.
Common reasons for mortgage denial include missing information on your loan application and not meeting minimum mortgage requirements. If your loan is denied in underwriting, you can double-check your paperwork, talk to your lender, explore other loan programs or find a cosigner.
Credit reports showing late payments, collections, or significant derogatory events—such as bankruptcies or foreclosures—can signal financial mismanagement and complicate underwriting.
Yes, you can likely get a $50,000 loan with a 700 credit score, as this falls into the "good" credit range (670-739) that unlocks better rates, but approval also hinges on your income, debt-to-income (DTI) ratio (ideally below 36%), and overall credit history, with lenders looking for stability and repayment ability, so prequalifying with multiple lenders helps compare terms.
Top reasons for a declined mortgage application
Some common reasons for your mortgage application being declined include: your credit history. too much debt. your employment history.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
The underwriting process typically takes between 40 and 50 days to complete. In deciding whether to approve your loan, underwriters consider your credit history and score, your financial profile and a home appraisal.
Understanding Mortgage Affordability in Canada
For insured mortgages in Canada, CMHC recommends a maximum GDS ratio of 39%. For a $90,000 salary (which breaks down to $7,500 per month), this means your housing costs shouldn't exceed $2,925 per month.
Mortgage Approvals & Debts
Your total debt load plays a crucial role in determining whether you qualify for a mortgage and how much you can borrow. A high level of debt can either reduce the amount a lender is willing to offer or lead to outright rejection.
An underwriter will look at your income and check the sources are accurate, legitimate and legal. They will also carefully examine the transactions within your records to ensure you haven't partaken in any money laundering.
Underwriting issues usually happen because of problems with a borrower's credit, income, assets, or missing documents, as well as mistakes made inside the lending process. Missing paperwork, wrong income numbers, and unexplained large deposits are some of the most common reasons loans get delayed or denied.
Underwriters and loan officers typically check the previous two months' bank activity in your bank statements. For self-employed mortgage applicants, however, they may go back up to 12-24 months.