Before you start looking for a new home, you should get preapproved for a mortgage. This will help you figure out how much you can afford to spend and show a seller that you’re a serious and qualified buyer. If you submit a preapproval application and get denied, you will have to figure out if you should apply for preapproval through a different lender or put your home-buying plans on hold.
Common Reasons for Denial and How to Address Them
If a lender denied your preapproval application due to your credit, check your credit reports. You may discover one or more errors that are affecting your scores. If so, dispute them and have them corrected before you apply for preapproval again. If you don’t find any errors, your debt level or late payments may be pulling your credit scores down. You can focus on lowering your loan and credit card balances and making payments on time to improve your credit.
A high debt-to-income ratio is another common reason why mortgage preapproval applications get denied. Paying down debt and/or boosting your income can improve your ratio. If you can’t find extra room in your current budget to put more money toward debt, picking up a part-time job or side gig, even for just a few hours per week, may help you earn enough money to improve your financial situation and qualify for preapproval.
Making a low down payment can cause you to have high monthly mortgage payments. That may make your debt-to-income ratio too high to meet a lender’s requirements. If you save more money, make a larger down payment and borrow less, you will be more attractive to a lender.
Mortgage lenders want to be confident that they will get paid every month, so they look for a record of stable employment. If you have been unemployed or have changed jobs multiple times recently, that can make a lender cautious. Staying at a job for a year or more may help you get preapproved.
Read the Denial Letter and Figure Out How to Proceed
A lender should tell you why it decided not to preapprove you for a mortgage. Once you have that information, you can take action to address the problem or decide to apply for preapproval through a different lender.
Each company has its own rules, so the fact that you didn’t meet one lender’s criteria doesn’t necessarily mean that you can’t get preapproved by another. If there is an issue that would likely cause another lender to deny your preapproval application, however, you should address it before you apply for preapproval again.
