Here’s What Happens When You’re Denied a Mortgage

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Just because you’ve been denied a mortgage doesn’t mean you can’t buy a home. Read on to learn what your next steps should be. 

Many people who want to buy a home can’t afford one outright, so they turn to mortgage lenders for help. But just because you’ve applied for a mortgage doesn’t guarantee that you’ll get approved. And if you’re denied a mortgage, you may have to put your home-buying plans on hold.

That said, being denied a mortgage doesn’t automatically mean that homeownership is off the table for you. There are other options you may be able to explore if your initial mortgage application is rejected.

Why might you be denied a mortgage?

There are a number of reasons why you could be denied a mortgage. For one thing, it generally takes a minimum credit score of 620 to qualify for a conventional mortgage. If your score is lower than that, you’re likely to be denied. And even if you have a 620 credit score, some lenders might say no regardless of you meeting that minimum requirement because their own standards are higher.

Another reason you could be denied a mortgage might have to do with your income. It may be that you’re asking to borrow more than what your salary can comfortably allow you to repay. Lenders don’t want to risk not getting repaid, so they put income requirements in place that differ based on the sum you’re borrowing. But if those numbers don’t match up, then you may not get the home loan you’re after.

Finally, it may be that you already have a lot of debt relative to your income. If so, that alone could serve as a red flag and cause a lender to say no to your mortgage request.

What to do when you’re denied a mortgage

If you’re denied a mortgage repeatedly, you may need to delay your home-buying plans until your financial situation changes. But if you’re denied a mortgage after one application, it could pay to look into other options.

For one thing, it may be that one lender isn’t comfortable writing you a loan, but another one is. So shopping around could give you the “yes” you’re after.

Also, if your credit score isn’t high enough to qualify for a conventional loan, you can try applying for an FHA loan instead. FHA loans have lower credit score requirements than conventional mortgages do.

You can also try to address some of the issues that may have prevented you from getting approved for a mortgage. Say the issue was your income. If you’re able to switch gears and buy a less expensive home that results in a smaller mortgage, you might get approved, even if you’re not able to boost your earnings. And if you were denied a mortgage due to having too much existing debt, you could see if it’s possible to pay some of that debt off and then apply again.

Finally, if your credit score is the reason you’ve been denied a mortgage, you should know that consistently paying bills on time could lead to a higher credit score in time. Another smart thing to do is to check your credit report for errors, because a mistake that reflects poorly on you could be dragging your credit score down needlessly.

Being denied a mortgage can constitute a blow. But don’t assume that buying a home is off the table. There may be another lender out there that’s willing to give you a chance, or there may be steps you can take to turn a “no” into a “yes.”

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More