The mortgage process is full of roadblocks for many people. It can be incredibly frustrating to get turned down for a mortgage time and again, but don’t give up.
Being denied a loan doesn’t mean you won’t be able to buy your dream home. There are still plenty of things you can do to get the financing needed to make a purchase happen. Here are a few suggestions:
1. Talk to the Lender and Ask for the Reason of the Denial
This may seem like common sense, but many people are too embarrassed to follow up with the lender. They assume that they will never be able to afford a home and don’t want to hear another no.
Asking your lender why you were denied can help you figure out what went wrong and how you can fix it next time around. It shows lenders that you take the process seriously and will work hard to get approved for a mortgage in the future.
Now, there are many reasons for the denial. First, your credit score might not be enough to qualify for the loan. In this case, you should check your credit report for any errors and find ways to increase your credit score.
Additionally, you might have issues with your employment history, too much debt, and more. Either way, discussing the refusal with your lender can provide you with a solution.
2. Be Open to Other Forms of Financing
Talk to your current lender about other forms of financing you could qualify for if your first application was denied. There are other types of loans available, including government-backed mortgages that provide rock-bottom interest rates and require no down payment.
Supreme Lending, for example, offers jumbo mortgages, which are ideal home loans for property prices beyond conforming limits. Other forms of home loans include FHA mortgages, VA loans, and USDA mortgages.
3. Consider Concessions
Sometimes you need to learn to compromise. Depending on the reason for the rejection, you might want to do any of the following.
First, consider increasing your down payment. Some lenders have low down payment requirements of 3 percent, but the ideal percentage is 20 percent. It tells the lender that you’re capable of paying and frees you from paying private mortgage insurance (PMI) for years.
Second, if the lender doesn’t want to loan you the money because of your income, get a co-signer or co-borrower. This way, the lender knows you have someone to share the financial responsibility with.
Third, you can just wait six months and reapply for a mortgage. This allows your credit report to improve or decrease negative marks on it. Either of these could make a difference when applying for a loan again down the road.
4. Fix Your Finances
Lenders might not want to approve your home loan because your finances are messed up. Take some time to clean up your credit and lower your debt.
You can do this by paying your bills on time and maintaining an ideal credit utilization rate. If you see anything on your credit report, such as missed student loan payments, get on the ball immediately and pay off smaller debts first. If you’re stressed about paying back money to friends and family, consider getting a peer-to-peer personal loan.
5. Go Back to the Lender in a Year
If you’ve been denied a mortgage, don’t worry. Just because your application was denied today doesn’t mean it will be denied next year. You can shop around for other types of loans or wait until your credit score increases before reapplying for another application.
The circumstances of your refusal might clear up too, which could make all the difference in the world when filing out another loan request.
6. Find Another Lender
If you’ve tried working with your current lender and the reasons for the denial keep piling up, consider looking into other lenders.
First, ask friends and family for a referral. They might know of a lender in your area. This is not always the case, but sometimes, there’s at least one good lender who will work with you to get approved.
Second, be prequalified by these lenders. During this process, the lender will assess your creditworthiness and determine if you qualify for a mortgage. Because this is only a soft pull, it won’t affect your credit score.
If you’ve been denied a mortgage, don’t fear. It doesn’t mean your homebuying journey is over. You can explore many alternative financing options and even lenders you realize your goals of homeownership. Just know that sometimes getting approved for a mortgage isn’t as easy as it seems.