Turned down for a mortgage?
Being in the business over a decade, you see almost everything. It’s exciting seeing a new client (some friends, family or referred to us from both) excited about buying a home. It’s only after some of them come back from getting pre-approved and they get bad news does your heart sink for them. We’re human too and wish we could wave a wand or blink and have it change, but it’s not that easy. We hope this post helps.
If you’ve recently applied for a mortgage and was turned down, overwhelming emotion takes hold ranging from embarrassment to shame. It’s like a big slap in your face because on paper, you may be able to afford payments. However, whatever reason you were denied, it can be turned around with attention to details and time.
First, stay focused. Now that you know you can’t get a loan, start working on the list of items you can do to pull up your score and minimize the negative score. It’s time to learn what you’ve done wrong in the past and what you can do to correct it – starting today.
If you’re declined or turned down for a mortgage, a lender will send you an “adverse action” letter within 30 days of the denial. It will state the reason for their action and provide contact details so you can request additional information (up to 60 days from issuance).
- Some common reasons people are denied include:
- Low credit score
- Too much debt
- Insufficient income
- Short job history
- Unstable income
- Derogatory credit
If you’re turned down, you can try to apply at a different lender. Some programs from Fannie Mae and Freddie Mac establish a minimum threshold yet lenders add their “overlay” on top of these programs to reduce their risk. You may need to ask what lender overlays were applied in your application.
The 30-Day Period
If you’re applying for a loan, you have thirty days to make application at various lenders before impacting your credit score.
MyFICO.com states: “FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry.”
Ask for help. Inquire from the lender and loan officer where you missed the mark and get answers so you can start working rebuilding your negative credit score.
– Are there other programs available based on my credit?
– How much does my income / credit score / down payment / assets / whatever have to change before I can be approved?
– Play with the criteria: What about a smaller loan amount? What if you had a larger down payment? What if interest rates drop for my product? What debt should I pay off?
Fix Credit Reporting Errors
If your score is just under the lender threshold, review your credit reports for inconsistencies. If there’s an error, your score could be fixed using a “rapid rescorer.” A Rapid Restorer company works with lenders to help clear mistakes with proper proof. Then they can quickly rescore your credit report. There may be a fee for this service and there are no guarantees of success.
Try New Scenarios
When the application is submitted, lenders often underwrite a mortgage application with an AUS (automated underwriting system). They provide lenders with preliminary underwriting decisions.
In some situations, say they use the Fannie Mae Desktop Underwriter (DU) declines your application, your loan officer could resubmit it based on another scenario — for example, with a higher down payment. If you get a preliminary approval under that scenario, you know what you have to do.
Finally, get more help!
Once you spend the time and energy tracking down letters, paying creditors, and cleaning up your score, you can work toward getting qualified for your home loan.
Credit issues are important and may professional assistance. We do not represent our services as Financial Advisors or Tax Attorneys. Consult the proper experts and get back on the path to Reputable credit counseling services can help you budget effectively, and may be able to reduce the payments or interest rates of your consumer accounts. Stick with your plan, and you’ll eventually pass muster with a mortgage lender.