Overcoming Loan Denial
We’ve recently written about 10 reasons loans get denied:
- Credit score
- Bankruptcy or other recent credit history
- Debt-To-Income ratios (DTI)
- Employment history
- Down payment & cash reserves
- Your application
- Bad timing
- Subjective rejection
Our Loan Denial Assistance Hotline is here to help you, no matter what the reason for your loan being rejected. We can help you understand what led to the loan denial, and what you can do to get qualified.
Strategies for overcoming loan denial:
Prior to the loan:
- Gather all of the documents you need. Missing docs lead to rejected loans.
- Build savings to afford a down payment and build cash reserves
- Pay down debts to improve your credit and DTI.
- Review your credit and make sure everything is accurate and up to date. Address any negative items.
- Calculate your income completely and correctly.
- Check out our 7-part “Guide to Homeownership” series.
If you’ve already been rejected:
- If you didn’t do so before, check your credit report. Make sure your positive credit history is included along with the negative. Correct any erroneous or outdated info.
- Talk to you lender; under the Equal Credit Opportunity Act, the lender must provide a written explanation for why you were turned down. A qualified counselor can look over this document with you and help you understand everything it says.
- Work to remove any negative credit entries on your reports; you may be able to negotiate this removal in exchange for paying off a collection account, for example.
- Work to re-establish good credit, either by bringing delinquent accounts current or establishing new credit that you can manage successfully.
- If you were denied for not having enough resources or income, look into programs for low-to-moderate income borrowers, or loans with lower down payments, like FHA or VA loans if you qualify. Our homeowner counseling services can help you determine what programs would be best for your situation.
- Renegotiate the loan—if the loan was too close to 100% of the property value, you will get denied. You should strive to borrow 80% or less of the home’s value to avoid paying PMI (private mortgage insurance). If you simply must borrow more than that, keep the loan below 95% of the home’s value. Either by increasing your down payment, or reducing the selling price to 95% of the value, you may be able to get another change. Consider getting a new appraisal if you think the property wasn’t valued correctly.
- Once you get counseling or assistance to correct everything you can that held you back the first time, apply for a new loan and present yourself in the best light possible. Do everything as if you are trying to impress someone important, like you are applying for an important job. Think of counseling as job coaching or help putting together your resume. A well-prepared application to a new lender can give you different results, especially considering you may have a new loan officer and a different appraiser. Each fresh set of eyes on your improved application can mean an approval the second time around.
- Check out our Back to Work Program counseling-it can help you qualify and apply for an FHA loan even if you’ve had recent financial trouble.
If you’re just starting out, we can help you make sure you have all the documents you need, your credit looks as good as possible, and your budget is designed to help you afford a new loan payment.
If you’ve already been denied, we can help you understand the reasons for the loan denial and come up with a targeted strategy for improving your likelihood of qualifying for the loan the next time you apply.