Denied a Mortgage? Follow These Steps

February 07, 2015

mortgage rejectionWith the stringent mortgage regulations currently in place, it’s not uncommon for home buyers to be denied a mortgage. In fact, according to the Federal Reserve, more than 14 percent of all mortgage applications were denied in 2013. If this has happened to you, it can be upsetting, but it’s important to not get discouraged.

After receiving a denial from a lender, use the steps outlined in “What to Do if You’re Rejected for a Mortgage” on the Equifax Finance Blog to determine how you should proceed.

The first thing to do if you’ve been denied a mortgage is figure out why. Some of the most common factors for a rejection include your yearly income being too low compared to the loan amount requested, having credit issues or a lack of credit, or how high the loan-to-value (LTV) ratio is. This ratio comes from the loan amount you requested divided by the appraisal value for the home you want to purchase. Most lenders have a limit as to how high the LTV ratio can be, so if the home appraisal was too low, it may cause that ratio to be too high. Most lenders will send a letter to you explaining the rejection, but speaking with your lender directly can provide you with more insight to your specific situation.

If you were denied a mortgage due to issues on your credit report, be sure to order a copy of your credit report, which you can receive free once a year from each reporting agency. Inspect your report to make sure all of the information is accurate. Then, determine what areas need improvement and how you can begin to strengthen your credit and improve your score. While it may take time to adjust your credit to make you an acceptable borrower to lenders, in the long run it will benefit you as a better credit score and history will likely mean a lower interest rate.

Next, determine if there were better mortgage options for your situation than the one you choice. If you applied for a mortgage from a private lender or through your bank, consider applying for a government-backed mortgage, which usually offers better financing options. Also, be aware that each lender has different requirements, so be sure to shop around if you’re considering using a different one.

A final option is to consider asking someone with a higher income or better credit to be a cosigner on your loan. They will be equally responsible for the loan, which is a big undertaking, but if they have favorable lending conditions you may be more likely to be approved for a loan.

If your application for a mortgage has been rejected, don’t get discouraged. Instead, find out why, and then plot a course of action to become a more attractive borrower to lenders.


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