If your loan application is
rejected
If your mortgage loan
application is rejected, you will need to determine why, so that
you can take steps to correct any problems or to improve your
ability to get a mortgage in the future.
Understand
why the loan was denied
Mortgage lenders
are required to explain in writing why they deny credit.
Talk to the loan officer to find out the specific reason
your request was rejected. You
may be able to persuade your mortgage lender to reconsider your
application.
If not, ask for
suggestions as to how you can improve your ability to get a
mortgage. At any
rate, you should not necessarily assume that a rejection by one
mortgage
lender means your loan application would be rejected by other
lenders.
Reasons for a
loan denial when buying a home:
Insufficient funds
You might try to
get the seller to agree to finance a second mortgage, thereby
reducing the amount of down payment required.
Or would family members be willing and able to provide a
gift of funds to be used in paying closing costs?
Are there local
down payment or closing cost assistance programs available?
A Lease-Purchase
Mortgage Loan (rent with option to buy) may help you to overcome
the problem of insufficient savings for a down payment.
If all else fails,
start a serious savings plan so that you will be in a better
position to buy a house a year or two from now.
Insufficient income
If the mortgage
lender’s qualifying formula shows that you can’t afford the
house you are planning to buy, are there perhaps some justifying
circumstances that you might point out to the loan officer—for
example, that the rent you are already paying is as great as the
proposed monthly payment?
Or
you may be due for a raise, which will make you eligible for the
loan—will a letter to this effect from your employer help?
Too much debt
Perhaps your
existing debt is what’s creating the roadblock because it puts
you outside the mortgage lender’s qualifying guidelines.
Again, if you are
very close to qualifying, you may be able to convince the mortgage lender
to reconsider, especially if you have an excellent credit history.
Otherwise, you may
need to pay off some of your debts before you can buy a house.
It is important to consult with your mortgage loan officer for a
long term game plan of which debt to pay off.
Poor credit rating
If you are refused
credit on the basis of a credit bureau report, you are entitled to
a free copy of the report from the credit-reporting agency.
You can then challenge any errors and can also insist that
the credit-reporting agency include your side of any unresolved
credit disputes in its reports.
If you have not
received your free credit report, you can do so here.
If your credit
history is in fact unsatisfactory in some way, you should start
repaying debts in order to get current.
Once you have improved your credit profile, you may be in a
position to begin house hunting again.
If you have bad
credit, this company may be able to assist you:
If you have
applied for a mortgage loan using a nontraditional credit history that
documents payments to landlords and utility companies, you may
want to ask a nonprofit housing group to help you present the
documentation in a more favorable light.
Low appraisal
Perhaps your loan
application was rejected because the appraisal of the property was
too low compared with the agreed-upon purchase price.
You may be able to use the low appraisal to help you
renegotiate the purchase price to an amount the mortgage lender
would agree to finance.
If the low
appraisal reflects some structural problem or needed repairs, can
you get the owner to agree to fix the problem before the sale?
Or will the mortgage lender approve your loan request if the seller
agrees to set aside funds in an escrow account to be used to make
the needed repairs after the sale?
Seek
outside help
Investigate any
state or local programs designed to encourage homeownership,
including government and nonprofit agencies.
Is the house you want to buy in an urban renewal area?
If so, there may be a government program that can help you
finance your purchase.
If there is a
housing counseling agency in your community, you may be able to
get advice and possibly some help in putting together a long-term
plan for homeownership. To
access a nation wide list of these agencies, click here.
Report
suspected discrimination
The Equal Credit
Opportunity Act and the Fair Housing Act prohibit discrimination
against a loan applicant on the basis of race, religion, age,
color, national origin, receipt of public assistance funds, sex,
or marital status.
If you suspect
that the mortgage lender has denied your credit application unfairly, you
should report your grievance to the lender’s regulatory agency
or to HUD, the agency in charge of enforcing the Fair Housing Act.
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