Denied a Mortgage? Here's How to Fix It Fast

By Mikey Rox on 5 March 2015 0 comments

If you're applying for a mortgage, be prepared to fulfill a long list of guidelines set by the lender. You need acceptable credit, sufficient income, a consistent work history, and cash for mortgage-related expenses. If you're missing any piece of the puzzle, the lender might turn down your request. But getting denied for a mortgage doesn't mean that you have to give up your dream of owning a home. It is your inalienable American right, after all.

Still, there are a number of reasons why a lender rejects an application, and depending on the reason for your denial you may be able to resolve the issue quickly and get approved. Here are five things you can do to undo a mortgage rejection.

1. Renegotiate With the Seller

Getting pre-approved before shopping for a house is a smart move. A pre-approval lets you know early on if you even qualify for a mortgage, and how much you can expect to receive. You can wait until after submitting a bid to apply for a mortgage, but then you risk bidding on houses you can't afford. If you need more than a bank is willing to lend, the lender has no choice but to deny the mortgage request. To keep the ball in your court, you can go back to the seller and renegotiate the deal. If the seller can reduce the price to an amount that's affordable for you (remember — you ain't too proud to beg), the mortgage lender may approve your application.

2. Bring More Cash to the Table

In today's fickle housing market, many home sellers aren't walking away with a ton of cash. They might sell a house for exactly what they need to break even and pay realtor commissions. For that reason, going back and re-negotiating a lower sale price might not be an option. But this doesn't mean you've lost the battle. If the bank rejects your mortgage because you don't qualify for the sale price, you can make a bigger down payment and cover the difference out-of-pocket. This only works if you have a sizable cash cushion. For example, if you need $200,000 to purchase a house, but you only qualify for $190,000, give the seller a 5% down payment instead of 3%.

3. Pay Off Existing Debt

Don't underestimate the consequences of too much debt.

A mortgage lender will examine your credit report to see how much you owe elsewhere. The bank looks at your credit card balances, auto loans, student loan debt, and any other loan payments you may have. And unfortunately, a high debt-to-income ratio can be the kiss of death when applying for a mortgage. An underwriter may deny the mortgage if you're juggling too many expenses and your income can't support another monthly payment.

If you don't have a cash reserve, a high debt-to-income ratio isn't something you can fix overnight. You'll have to develop a debt-payment strategy and slowly pay down balances. But if you do have a cash reserve, immediately paying off your credit cards or loans might save the deal. Typically, mortgage lenders don't want an applicant's total debt payments — including the mortgage payments — to exceed 36% to 43% of gross monthly income, depending on the type of mortgage.

4. Rapid Rescoring

You might not know about this trick, but if you're denied a mortgage because of errors on your credit report, rapid rescoring can fix these issues in a matter of days. Errors on your credit report can pull down your credit score. Although you can dispute these errors, it can take weeks or months for the bureaus to investigate and delete negative information from your file.

Rapid rescoring can correct errors faster than disputing the traditional way. There's a fee for each corrected item, as much as $25 to $30 per account, depending on which rescore company you use. Proof of errors are expedited to the credit reporting agencies, and removal takes place within three business days. A mortgage lender can put you in contact with a rapid rescore company.

5. Apply With a Different Bank

Just because one bank denies your mortgage request doesn't mean another bank will. Many banks have different credit score requirements. For example, one financial institution may require a minimum credit score of 700 for a conventional loan, whereas another bank only requires a 680 credit score. Find out why a lender denied your mortgage, and if it had anything to do with your credit score, you might have a different outcome working with another bank.

Were you ever denied for a mortgage? How did you fix it in your favor?

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