What to do when your mortgage application is refused

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Your mortgage application has been refused. These words sound harsh, but they don’t always mean you can’t get a mortgage.

If your lender rejects your loan application, all may not be lost. There are a few steps you should take after being turned down to see how you can improve your chances of getting a mortgage with your next application.

Find out why you were refused

When your loan application is rejected, “it shouldn’t come as a surprise,” says Brian Koss, executive vice president of Mortgage Network Inc. “Your loan officer should have given you a good assessment. “

the mortgage application process is fairly rigorous no matter who you are applying with. At some point in the process, if you have one or more strikes against you, the loan officer should tell you that you may not qualify.

“The lender is supposed to provide you with the reasons why you were turned down so that you can take this information to heart and use it to identify a way to fix the issues, so you can get a better financial situation and re-qualify yourself more. late, “says Bruce McClary, senior vice president of communications for the National Nonprofit Credit Counseling Foundation.

There are a number of reasons why you may be turned down for a mortgage, including:

  • Changes in your employment status – If you recently got a new job or were made redundant, for example
  • Changes to your credit or a weak credit rating – A number of things can affect your credit score, including opening or closing credit card accounts, making a large purchase like a car, or taking out a Personal loan. As you approach your closing, it’s a good idea to maintain the status quo with your finances to avoid these pitfalls.
  • Changes in your income – For example if you have suffered a reduction in salary
  • Too much debt – If you already have a lot of debt, lenders may view your debt-to-income ratio as a negative point against you and may deny your application.

Check your credit

Your credit score plays an important role in determining the types of loans and the rates for which you are eligible. Make sure you examine your credit report up close and make sure there are no mistakes that could lower your rating.

“Get to know your credit score and take steps to make sure your credit score is strong,” says Dave Mele, president of Homes.com.

If your credit score isn’t good and a lender tells you that’s why you were turned down, don’t assume it’s the end of the road for you and a loan. You may still be eligible for a loan from another lender. For example, government guaranteed loans like those from the Federal Housing Administration (FHA), VA, or USDA tend to have lower credit limits than private mortgages.

Banks don’t always offer all types of loans, so if you’ve been turned down by the same bank where you kept your money, in many cases it’s not you, it’s them.

“Look for someone who works for a non-depository institution and works with a direct mortgage lender versus a bank,” says Corvi Urling, loan consultant at LoanDepot. “Mortgage lenders generally have a larger portfolio and would then have the option of offering access to various programs that you may be eligible for. “

You can also work on improve your credit. The best way to do this is to make sure you pay your bills on time, but it’s also a good idea to minimize the credit you use by keeping little or no balance on your cards. You might also be able to take advantage of credit enhancement programs.

Pay off your debt

Even with a good credit score, lenders are also concerned with how much money you owe for things like credit card invoices, car payments and student loans and compare that to how much money you make. This is known as your debt-to-income ratio, or DTI, and this can play an important role in determining your eligibility for a new loan by lenders.

For example, if your salary is already mostly spent on existing high monthly bills, lenders won’t be sure that you will be able to make your monthly mortgage payments as well.

Most of the time, lenders want to see a DTI below 43%. If you don’t fit this profile, there are ways to overcome this number.

“One of the great things you can do is pay off other debt,” says Mele. “A credit card is a great place to start. “

Learn more about balance transfer credit cards that help you pay off your debts faster.

Seeking help with student debt

Today’s generation of buyers are also much more likely to be in debt due to their education, but that doesn’t mean they can’t buy a house.

If your student debt is holding you back, consider an income-based repayment plan, which can lower your monthly payment obligation. Some lenders may also have mortgage products just for doctors, who may have exorbitant student loans but usually also have above-average salaries when employed.

Compare the prices

You wouldn’t stop shopping for clothes just because the first thing you tried didn’t fit on you, so don’t make that mistake with your mortgage.

“There are a lot of people who aren’t bad borrowers but just have credit problems,” says Raymond Eshaghian, president of GreenBox Loans.

There are mortgages for many different buyer profiles, and just because a 30-year standard loan might have been suitable for the couple around the corner doesn’t mean it is for you.

“You never want to have all your eggs in one basket. It would be horrible if you could close until it closed and had the moving truck in the front and now you can’t move into that house anymore, ”says Urling, who recommends complete applications with at least two or three lenders to help cover the likelihood of being rejected out of hand. “There is no obligation for a consumer to take out a loan at any time.”

There is no mandatory waiting period after denial, but since a mortgage application usually involves a credit check, which can lower your score, it may be a good idea to wait a bit for your mortgage. have time to smooth out.

A co-signer can also help you qualify. For example, if you’re a young buyer with below average credit, but your parents have stronger credit and are willing to co-sign your loan, you might get approved more easily.

Keep in mind, however, that having a co-signer can make your application a bit more complicated, as you will need to include more supporting documents.

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