What to Do If Your Mortgage Application Was Rejected

Being turned down for a mortgage can be devastating, but you may still be able to achieve your dream of owning a home. Your lender should provide you with a letter explaining why you were denied. You can use that information to make changes to improve your chance of getting approved for a mortgage in the future, either with the same lender or with a different company.

Boost Your Credit Score
One of the most important factors in a lender’s decision is a mortgage applicant’s credit score. You should’ve checked your credit report for errors before you submitted your loan application, but if you didn’t, check it now. Lenders frequently misreport or fail to report information, and data from different people’s reports sometimes gets mixed up. Errors in your credit report may have caused your application to be rejected through no fault of your own.

If your credit score is low because of high credit card balances or missed or late payments, work on bringing it up by paying down your balances to lower the percentage of available credit you’re using and by paying all your bills on time. If you have a foreclosure or bankruptcy on your credit report, those derogatory remarks could affect your credit score and your chance of obtaining a mortgage for years. You may need to let some time pass and work on rebuilding your credit before buying a house.

Lower Your DTI
A lender looks closely at an applicant’s debt-to-income (DTI) ratio, or the percentage of gross monthly income that’s used to pay credit card bills and loans. If a lender rejected your application because your DTI is too high, you can lower it by paying down your debts and/or by increasing your income. If you have high loan payments, you might be able to lower them by refinancing.

Put More Money Down
If you want to make a small down payment and borrow most of the money for your dream home, the lender may consider your application too risky. You might be better off finding more money for a down payment or applying for a mortgage through a lender that routinely offers loans to borrowers with small down payments.

Stick With Your Job
Most lenders want a mortgage applicant to have been in the same job for at least two years. That helps the lender be confident that an applicant is capable of holding down a job and is likely to repay the mortgage. If you recently started a new position, focus on impressing your boss and building a stable work history.

Don’t Give up Hope
If you’ve been denied for a mortgage, find out why the lender turned you down and take action to address the issue. You’ll have a better chance of qualifying if you work on improving your financial circumstances. You can also submit another application to a different lender that has more lenient terms or that offers mortgages for people in circumstances like yours.