Mortgage Application Denied? Don’t Give up Hope!

If you’ve been denied for a home loan, you can apply again. But not before you take some very important steps.

The denial letter from the lender contains valuable information so resist the urge to throw it in the trash. Most importantly, the letter should include the reason for the denial of credit as that’s a requirement of the federal Equal Credit Opportunity Act. It should also list the credit agency name and address that was used if the reason for denial was based on your credit report. If a specific reason was not given, or you don’t understand the reason, be sure to contact the lender for an explanation. Sometimes the decision is based on a combination of factors.

Whenever a credit report is involved in a loan denial, you can, within 60 days of the denial, obtain a free copy of the report that was used. Order it and take steps immediately to correct any discrepancies you find. Once corrected, ask the credit agency to forward a corrected copy to the mortgage company that denied your loan. Then contact the lender and request a reevaluation of your mortgage application.

Not all denials involve faulty credit. Lenders have standards for approving credit and among them are minimum income, residency and job longevity requirements. Not meeting any of these standards can also trigger a loan denial.

Little can be done about not residing at your address or working at your job long enough. However, you do have options if insufficient funds, whether for the home purchase or the down payment or the closing costs, is an issue. You may find you qualify for loans geared towards low to moderate income applicants such as VA and FHA loans.

A request to borrow more than 95% of home’s appraised value is another reason lenders deny applications. If this is the reason, try renegotiating a lower selling price with the homeowner. Doing so will lower the amount you need to borrow, and that can trigger an approval. If funds are available, you could make a larger down payment, which also lowers the amount you have to borrow. Sometimes an appraiser undervalues a property so you can always ask the lender to take a closer look at the appraisal.

If all else fails, consider this: Different mortgage lenders have different lending criteria. If denied by one, you can always apply for a mortgage with a different lender.