Rejected for a Mortgage? It’s Not the Final Word

Rejected for a Mortgage

Sorry, your mortgage application was denied, you have been rejected for a mortgage.   Harsh?  Maybe, but they don’t always mean you can’t get a mortgage.

On average,  Lenders reject about 1 in every 2 applications they receive to refinance a mortgage, according to the Mortgage Bankers Association.  About 30% of purchasers who apply for a mortgage are turned down.  So are purchasers more qualified?  Not necessarily.  Purchasers tend to do more research up front about qualifying for a mortgage loan.

However, despite the tight lending environment, borrowers shouldn’t always take “no” for an answer. In some cases, they just need to apply with a different lender or take a few simple steps to improve their credit to get over being rejected for a mortgage.

Lenders have different requirements or interpretation of guidelines.  One Lender may be willing to stretch something that makes sense whereas another Lender may follow the guidelines quite strictly.   Not every borrower is appropriate for every lender, which doesn’t mean they shouldn’t get a mortgage.

Not all borrowers are successful when they reapply and get rejected for a mortgage a second time.  To decide if it makes sense to reapply, borrowers must learn what went wrong, he says.

Why Don’t you Qualify?

Once you’re informed your mortgage application is denied, find out exactly why the lender turned you down.  By law, you have the right to receive a disclosure (denial) letter with the reason you were rejected.   However, these letters can be very general.

If you don’t understand the reasons listed on the denial letter, ask your loan officer to explain it to you.

Ask as many questions as you can to get a better understanding of the denial.

Appraisals

Sometimes the reason for the rejection is simple: The property’s value isn’t sufficient to back the amount of the loan. Lowball appraisals kill many purchases and refinances, but sometime it’s just a matter of reapplying with a second lender.

If you get declined due to LTV (loan-to-value), it’s always worth looking into a new lender to see if you could get another appraisal.   Depending on what management company the lender uses, the appraisal can change greatly.

In a perfect world, the appraised value on a house shouldn’t vary much from one appraisal to another. But they do.  An appraisal is an estimate of value and while they should be close, regardless of who does it, there are cases where a discrepancy can be quite large.

Borrowers and lenders are not allowed to order second appraisals as they attempt to get a mortgage approval. Borrowers have the right to ask for an appraisal rebuttal, but most of the time the review does not result in a higher appraised value, which is why many borrowers choose to apply with a different lender if they think the appraisal is incorrect.

Credit

If you are denied for credit issues, the first think you need to do is get a copy of your credit report.  Your Lender will probably not give you a copy so you will need to obtain your own.

Once you have a copy you need to review it for any inaccurate information.  Credit reports are known to have errors.  You can either challenge the inaccuracies yourself or hire a company to help you.

Generally, you can correct errors within a short period of time.  Once corrected then you re-apply for your mortgage.

Other Denials

These can run the gamut from lack or income, down payment, type of property, job history and many others.  With these you need to talk to you loan officer to get a better understanding.  Some of these might be fixable while others may not unless something changes such as a different property.

Just because you get a “no”, don’t give up.  Many borrowers first hear “your loan has been declined” only to hear a few months later, “You’re Approved”.  Getting Rejected for a mortgage isn’t the end, just the beginning.