Mortgage Denied? Here’s How to Recover

April 29, 2021
Last updated:
April 6, 2022
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Having your mortgage application denied can be disheartening to most home buyers. But the good news is there are a few things you can do to recover and get back on track with your homeownership goals.

Getting approved for a mortgage can be challenging, especially without the right mortgage assistance. In fact, roughly 8 percent of US mortgage applicants were denied, according to the Home Mortgage Disclosure Act (HMDA). So, if you have recently been denied a home loan, for starters, you are not alone. Secondly, your dreams of homeownership are not completely dashed. There are actually several things you can do to recover from your mortgage not being approved.

What Are The Most Common Reasons For A Denial?

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 Can You Recover From A Mortgage Denial?

If you were denied because of your credit history, then your next step should be going over your credit report. Any errors or outdated information you find might very well be the reason you were denied. So, if you notice any discrepancies on your report that should not be there, then  you should dispute them with the credit reporting agency online or via certified mail.

On the other hand, if your credit report is accurate, then you will most likely end up having to play the waiting game until any damaging information falls off your report.

However, 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. Note, a low credit score could also be the reason your mortgage was not approved. Thus, in this instance, you should take the necessary steps to build it back up—paying down debt, making on-time payments, avoiding new lines of credit, and keeping your percentage of available credit low.

Alternatively, if your lender informs you that your DTI ratio is the culprit, then the solution here is fairly simple—lower your DTI before reapplying. Here, a few easy ways to lower a high DTI are by increasing your income, refraining from taking on new debt and paying down any existing debt. Finally, if the reason for denial was because of an insufficient down payment, then you generally have two options—save more or seek assistance/take advantage of available down payment programs.

Does A Mortgage Denial Reveal How To Boost Your Approval Odds?

As briefly mentioned, your DTI can significantly impact the odds of you getting approved for a mortgage. In fact, studies have shown 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.

When Should You Consider Reapplying With Another Lender?

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.

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Do you have questions about home loans or how you can get approved? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.

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