Turned Down for a Mortgage? What’s Next?

Turned Down for a Mortgage? What's Next?

First of all, you’re not alone. Hope that helps…

The Mortgage Bankers Association in Washington, D.C. states that about half of all mortgage applicants are being turned down. Good grief, that’s a lot.

The first thing you need to do is determine the reason for the rejection so you can fix what’s wrong, if anything is. Make sure the reason is valid and not a mistake on your credit report.

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. You’re also entitled to a free credit report; see the FTC.gov web site for more information.

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.

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; 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.

For increasing your chances of getting a loan, read How to Increase Your Credit Score.

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? Contact them first.

Credit unions are a great place to contact regarding a mortgage. My son and daughter-in-law were 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 to make it happen.

And, please, share your mortgage story with us here.

This post has 2 Comments | Would you like to leave a comment?

2 Comments

  1. Hi Christine:
    I’m not sure what you’re asking because you didn’t finish the sentence. What state do you live in? Is it a community property state? Were you and your husband married when you purchased the house? Are you on the deed? Do you keep your finances separate? As you can see, many things come into play that could change the answer so you really need to check with an attorney.

    Chances are, if you are not on the loan, you should not be responsible for paying it back during divorce but, perhaps, upon his death as it was pledged to satisfy the loan. If foreclosed, the lender will not come after you, but him, to satisfy any outstanding balance.

    Does that answer the question you intended to ask?

  2. My husband had a house in his name. I was not on the loan. Will I be held responsible to

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