What if you are Denied for a Home Loan?

If you are turned down for a mortgage loan, it does not mean that you have no chance of obtaining the financing that you need to buy or refinance a home.  First, ask the mortgage lender who denied your mortgage application exactly why they did so.  It may be something that can be easily fixed and then the loan has a chance to be resubmitted to mortgage underwriting department.  Make sure to have your qualifying ratios and loan to value ratio ready to compare with the figures from the mortgage lender’s underwriting department.  Use the mortgage calculators along with information on your income, assets, debts and the home’s value to determine these figures as accurately as possible.  Compare the mortgage payment calculated from the mortgage payment calculator with the payment numbers produced by the mortgage lender.  If the numbers do not match, an error is being made by either the mortgage company or yourself.

Some mistakes or errors may be in calculating income or not using income that you receive but was not properly documented.  The monthly debt payments may not be accounted for accurately.  Possibly your credit report has a debt such as a credit card that you have since paid off.  If the problem isn’t correctable, or if the lender is unwilling to resubmit your loan, you’ll want to fully understand the factors in your home loan request that present the problem.  You’ll receive a written statement listing the reasons your application was denied.  Lenders are required by a federal law, The Equal Credit Opportunity Act, to tell you in writing when you’ve been turned down for credit. 

Two important pieces of information must be included in a letter you receive when you are denied credit:

The specific reasons why you were denied credit (or information on how to obtain those reasons); and

If a credit report was used in making that decision, the name and address of the credit reporting agency that supplied it.

If you don’t understand the reasons given for turning down your application, call the lender and ask for more information.  Sometimes it can be hard to determine exactly why your application was not approved, because these decisions involve many different factors.  Don’t be shy about asking, though, since the information you receive may help you to find a way to improve your credit score or establish what debt could be eliminated that is leading to a high debt ratio or other factors.  All of the information obtained regarding the reasons for denial will help so you can qualify in the future.

When you are ready to reapply for home mortgage loan, do your research.  Review the guidelines generally needed to qualify for the type of mortgage loan you applied for.  If you think you can still get a loan, talk to another lender and explain your situation.  Tell them the reasons you were denied by the first lender, and give them your entire financial history.  All mortgage lenders work off of similar loan underwriting standards but different mortgage lenders may have different approval methods and operations.  Just because you did not get a loan from one financial institution doesn’t mean you can’t get one somewhere else.  If your new lender thinks a loan may be possible, you can request that your loan application package be sent over from the first lender.  They are under no obligation to do so, but may be helpful if asked.

Work through your lender choices one at a time.  Start with your best bet, and then move through the list if you are denied.  If you are unable to obtain financing at all, ask your lenders what you need to do to remedy the situation.  Take the time to sit down with the lender and discuss what steps you can take to clean up your credit or what debts you could reduce if your income is not high enough so that you are eligible for a loan.  Then find out how long you will need to wait before you apply again.  If your loan application was rejected because of insufficient income to afford the house you want or you have insufficient funds for closing costs and a down payment, you could consider loan programs for low to moderate income borrowers with lower down payment requirements, such as an FHA loan.  You may also want to run different loan scenarios through the mortgage qualification calculator and mortgage payment calculator to see how mortgage interest rates changes, loan amount changes or loan term changes can impact the loan approval.

If you are denied for mortgage financing, all you are out is any nonrefundable application fees that you’ve paid up front.  Lenders often include credit report fees and appraisal fees in this cost, passing these fees on to the borrowers.  Find out before you apply if your fees are refundable or not, and get these terms in writing.  Some lenders will prequalify or preapprove your loan without charging an application fee.

Being denied for a loan does not cause bad credit, although you may be denied because of your credit history.  Your credit report will not even show that you were turned down for a loan, the report will show the inquiry made by the mortgage lender only.  So, if you’re interested in financing a house, keep trying to find a lender that can work with you.  If this does not work, learn how to clean up your credit or improve other factors needed to qualify and then try again.  Learn the mortgage process, use the mortgage calculators and other resources and be persistent – it will eventually pay off.

Tags: home loan, mortgage, mortgage calculator, mortgage lender, mortgage payment calculator, mortgage rates

This entry was posted on Wednesday, April 15th, 2009 at 2:53 pm and is filed under Mortgage Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.