First of all, you’re not alone. Hope that helps… According to the Mortgage Bankers Association in Washington, D.C., about half of all mortgage applicants are now being turned down. Half. Good grief, that’s a lot.
Did you receive a formal rejection spelling out the reasons you were turned down? If you were turned down because of information on your credit report, federal law entitles you to something called an “adverse action” notice.
According to the Federal Trade Commission, when credit is the issue, you’re entitled to a copy of the results showing the reason for the negative report from the credit reporting agency that provided the data on which the lender based its decision. Whew! You’re also entitled to a free credit report; see the FTC web site for more information.
You’ll want to know the reason for the rejection so you can fix what’s wrong, if anything is, and make sure you clear it up. You also want to make sure that the reason is valid and not a mistake on your credit report.
Maybe your credit wasn’t the issue. Maybe the loan amount you wanted was too large for the appraised value of the home. If that’s the case, you’ll need to come up with a larger down payment or look for a less expensive home, something more in line with what your debt to income ratio will allow (how much you make versus how much you will owe once you buy the new home).
Or, was it simply the rate you were requesting that was denied? Try for a loan at a different rate. If you can’t get 5.5 percent, maybe you can get something slightly higher. How to qualify for a better interest rate? Borrow less, put down a larger down payment, or raise your credit score. If you want to wait for a better rate while you work on your credit score, work fast. Rates won’t stay this low forever.
How can you increase your credit score? Read How to Increase Your Credit Score for suggestions.
Not every mortgage company applies the same rules. Check around. Ask friends and co-workers for referrals. A smaller, local bank may be more flexible. Do you already have a relationship with a local bank?
Credit unions are a great place to contact regarding a mortgage. My son and daughter-in-law were recently turned down for a mortgage because the lender needed a two year history of my son’s self-employment. He’d only been at his job about a year and a half. Next, they applied at a credit union and, due to their high credit scores and good down payment, they received a loan immediately with a very low interest rate.
A rejection should not lower your credit score. And making multiple mortgage applications within a 30-day period should not negatively impact your score. However, if you apply for another loan after more than 30 days, this could lower your score, usually about five points.
No matter the reason for your rejection, keep asking questions until you know what those reasons are. Only you can make sure you qualify for a loan. The rules keep changing. Don’t give up. If you want to own a home, do everything you need to do and it will happen.
