What To Do If You Are Denied A Mortgage Loan

It can be a major disappointment to find out that your mortgage application has been denied. You may feel frustrated or confused about why you weren't approved for financing. You might even feel like it's not worth the hassle of continuing the process. Don't give up! With the right information and some careful planning, you could increase your chances of approval.

Mortgage applications can be denied for a variety of reasons. Ultimately, it comes down to the application failing to meet the guidelines of the loan program that was applied for. A low credit score, high debt to income ratio (the amount of debt payment obligations relative to monthly income), or not having enough money saved are a few reasons why a mortgage application could get denied.

Since there are many reasons for mortgage denial, step one is to find out exactly why your application was not approved. Your mortgage consultant should provide you with a Statement of Denial, or an Adverse Action Notice, that explains why your loan application was not approved. He or she should also be able to go over it with you if you have any questions.

Step two would be to determine the best way to fix whatever is holding you back. If the reason for your denial is related to a specific guideline, there may be another loan program that would better suit your qualifications. For instance, if the only thing holding your application back is a credit score of 600, ask your lender if they offer any special low credit mortgage loans. Many lenders offer this product to qualified borrowers who have credit scores that are less than perfect. Some even allow scores as low as 580 in some cases.

If a low credit loan isn't an option, your best bet is to work at getting your score higher. If you want to improve your credit worthiness, debt experts agree that the best methods include paying down your debt (particularly revolving accounts like credit cards), and paying all bills on time every month. Even that one late payment to your cable company can significantly lower your score and will be visible to any lenders reviewing your credit history. If you do end up with a late payment after a long history of paying on time, you should call the company and ask them for a "goodwill adjustment." This means they will waive the late payment record and not report it. If you're a long time customer and have a good track record, the company will likely grant you this courtesy.

If you were denied the amount of money you hoped to borrow, your solution may be to simply lower your budget and get approved for a lower loan amount. Alternatively, you could decide to save money for a while and then reapply later when you can afford a bigger loan.

It's important to realize that criteria for mortgage approval can change at any time, so if you correct the reason for your denial, there is no guarantee that you will automatically be approved on your next application. Nevertheless, knowing the best methods for making yourself an attractive loan candidate is valuable. If you've been denied, talk to your mortgage counselor for more information and advice on reapplying. He or she should be able to work closely with you to develop a strategy for being approved. Most importantly, stay positive. You're not the first person to have been denied for a mortgage. Many people have encountered this disappointing hurdle, but you don't have to let it stop you on your journey to home ownership.


Steph Medeiros is a marketing professional who helps promote mortgage lenders and their products, such as a 5 year arm, 20 year mortgage, or fixed rate mortgage loan.