If your mortgage application was denied, your first step is to find the exact reason listed by the lender before you decide what to do next. That reason will help you determine whether you should dispute an error, correct missing or inaccurate documents, improve your qualifications, or consider another lender.
Having your mortgage application denied can be disheartening to most home buyers, but it does not always mean your homeownership plans are over. If you have recently been denied a home loan, you are not alone, and there are practical steps you can take to recover.
Figuring out why your mortgage was not approved is the first thing you should do when attempting to recover from a mortgage denial. Typically, lenders are required to give a specific reason for your mortgage not being approved within 60 days of your application denial.
That said, there are at least three common reasons that one’s mortgage is denied—due to credit history issues, a higher debt-to-income (DTI) ratio, or insufficient down payment and asset reserves.
How you recover depends on the reason for the denial. Some issues are tied to errors or incomplete information that may be addressed more quickly, while others involve qualification problems that usually require more time and stronger finances before reapplying.
If the denial was caused by incorrect information on your credit report, start by reviewing the report carefully. Any errors or outdated items could be affecting your application, and if you find discrepancies that should not be there, you should dispute them with the credit reporting agency online or via certified mail.
If the denial was caused by missing, inconsistent, or unsupported documentation, your next step is different. In that case, review what the lender asked for, clarify any gaps, and determine whether updated records or explanations could resolve the issue before you submit a new application.
If your credit report is accurate and the issue is your credit profile itself, then the path usually involves improving your qualifications before reapplying. If you were denied due to a lack of credit or sufficient credit history, taking steps to build credit will help to boost your chances of getting approved next time. If a low credit score was the problem, focus on paying down debt, making on-time payments, avoiding new lines of credit, and keeping your percentage of available credit low.
If your lender informs you that your DTI ratio is the culprit, then your recovery plan should center on lowering your DTI before reapplying. A few ways to do that are by increasing your income, refraining from taking on new debt, and paying down any existing debt.
If the reason for denial was because of an insufficient down payment or limited asset reserves, then you generally have two options—save more or seek assistance and take advantage of available down payment programs.
In short, do not treat every denial the same. Errors and documentation issues call for verification and correction first, while credit, DTI, and asset issues usually call for improving the loan file before trying again.
As briefly mentioned, your DTI can significantly impact the odds of you getting approved for a mortgage. In fact, studies have shown that, out of the three common reasons for denial, a high DTI is at the top of the list. Thus, if you find out that this was the reason you were not approved, then improving or boosting your odds for approval is fairly straightforward.
By keeping your overall debt low, building and maintaining your credit, and saving for a larger down payment, you can actually increase your chances of getting approved next time you apply. This is true for all three common reasons for denial.
Yet another way to overcome not being approved for a mortgage is to consider reapplying with another lender. In general, it is highly recommended that you shop around with various lenders or mortgage companies for a few reasons. For instance, shopping around will ensure you get the best rate and that you are able to find the right lender or loan officer for your needs. Shopping around can also mean the difference between being denied and being approved.
Moreover, as you are likely aware, lenders’ requirements vary. Thus, it should not be too surprising that it helps to apply for a home loan with several lenders or at least more than one lending institution. This will not significantly impact your credit as long as you do it within a 30 to 45-day period. That said, if you have already applied and been denied, checking out other lenders and their requirements for approval might mean you do not have to wait to reapply.
Ultimately, these are just a few things you can do in the event of a mortgage denial. If you would like to learn more about mortgage approvals or need assistance reapplying, then you should speak with a local mortgage professional that understands your needs and can help you with your specific situation.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
The first step is to find the exact reason given by the lender. That reason helps determine whether you should dispute an error, correct missing or inaccurate documents, improve your qualifications, or consider another lender.
Common reasons include credit history problems, a high debt-to-income ratio, and not having enough for the down payment or asset reserves. Missing, inconsistent, or unsupported documentation can also lead to a denial.
A denial does not always end your homeownership plans. The next step depends on the reason for the denial, which may point to an error to fix, documents to update, or financial qualifications to improve before reapplying.
Yes. Whether you should reapply right away or wait depends on why the application was denied. Documentation problems or errors may be resolved sooner, while credit, debt-to-income, or asset issues often take more time to improve.
There is no single waiting period that fits every denial. If the issue was an error or incomplete documentation, you may be able to address it relatively quickly. If the problem was your credit, debt-to-income ratio, or savings, it usually makes more sense to improve those areas before reapplying.
Review your credit report carefully to see whether incorrect or outdated information affected the application. If you find errors that should not be there, dispute them with the credit reporting agency online or by certified mail.
If the denial involved documentation, review what the lender requested and look for missing, inconsistent, or unsupported information. Updated records or written explanations may help resolve gaps before you submit a new application.
Yes, approval may be more likely later if you lower your debt-to-income ratio before reapplying. Ways to do that include increasing your income, avoiding new debt, and paying down existing debt.
It can be worth considering another lender because lending requirements vary. Shopping around may help you find a lender whose guidelines are a better fit, and it can also help you compare rates and loan options.
Applying with several lenders within a 30 to 45-day period generally will not significantly impact your credit. Even so, it is wise to avoid taking on new debt and to focus on strengthening your credit profile before trying again if credit was part of the problem.
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