If your mortgage application gets denied, do not worry. There are still many opportunities to pursue a future mortgage. Mortgage lenders deny every 1 in 2 applications received. After the application denial, discuss with your lender the reasons behind the denial. Despite the tight lending environment, don’t give up on your dream of homeownership. Consider these next steps for mortgage re-application.
Find Out Why
Discuss with your mortgage lender and examine why your mortgage application was denied. You legally receive a disclosure letter, discussing the reasons for denial. Mortgage lenders will guide you through the disclosure letter as well as the mortgage re-application process. After determining the denial rationale, work with your lender to create a plan addressing the problem and preparing for mortgage re-application.
Fix the Problem
Once your mortgage lender reviews the reasons for denial, examine possible solutions. If there is an easy fix, the lender may approve your application. However, if the reason is going to take time to solve, start to address these problems as soon as possible to speed up the mortgage re-application process.
If the denial rationale is due to poor credit, contact your creditors and discuss repayment plans. Depending on the size of the repayment and how quickly you are able to pay these debts, setting up a repayment plan will bring all of your accounts down. Paying down the account will improve your credit score as well as bring payments up to date. Even if you’re not paying full payments, lowering balances will still boost your credit score.
Another reason for denial may be a lack of funds for a down payment. A majority of mortgage lenders require around 20% for the down payment. If the down payment exceeds your spending ability, start to arrange your finances. This saves money more for your down payment for mortgage re-application.
It’s important to understand your lender requirements before reapplying for a mortgage. Another possible reason for denial may be your debt-to-income ratio (DTI). This formulates your monthly mortgage payments to your income. Paying off debt improves your debt-to-income ratio.
When it’s Time to Re-Apply
After reviewing the denial letter and addressing the problems, it is now the best time to reapply for a mortgage. Each time you apply for a loan and get denied, your credit is negatively impacted. To avoid this costly mistake, be sure you are in good shape to re-apply for a mortgage loan.