What to Do if Your Mortgage Application is Denied
If you dream of homeownership , having your mortgage application denied can be devastating . If this does happen to you , it ’ s important to remember that you ’ re not alone . Thirteen percent of all purchase mortgage applications -- a total of nearly 650,000 -- were denied in 2020 , according to federal government data .
Before quickly reapplying for a loan , it ’ s important to first understand the reasons your loan was denied . The lender is required to disclose that information to you within 30 days of its decision . You can also call your lender for further explanation . Having this knowledge will help you work toward building your eligibility for a mortgage .
In some instances , the situation involves a quick fix , such as providing missing or incomplete documentation . However , if the reasons cited for your application denial involve down payment cost , a low credit score , an adverse credit history or a high debtto-income ratio , here are six steps you can take toward recovery :
1 . Consult a Housing Counselor . Consider speaking to a community-based credit counselor or a HUD-certified housing counselor . They can help you create a plan to increase your savings , decrease your debt , improve your credit , access down payment assistance or take advantage of first-time homebuyer programs .
2 . Improve Your Credit . In a 2022 Freddie Mac survey of consumers denied a mortgage application in the past four years , three in five cited debt or credit issues as reasons given for their initial denial . If this describes you , take time to improve your credit profile before applying for another loan . Good credit demonstrates responsible money management and gives you more purchasing power , opening doors to better loan terms and products . Visit www . creditsmart . freddiemac . com to access Freddie Mac ’ s CreditSmart suite of free financial education resources that can help you understand the fundamentals of credit and prepare you for homeownership .
3 . Pay Down Debt . In the application process , lenders will look at your recurring monthly debts , such as car payments , student loans and credit card loans . By lowering or paying down monthly debts , you can build a positive credit history and lower your debt-to-income ratio . Not sure where to start ? Tackle your debt with the highest interest rate first .
4 . Obtain Gift Funds . If you ’ re short on money for your down payment , you may be able to use gift funds from a family member to decrease the amount you need to borrow .
5 . Find a Co-Signer . A co-signer applies for the loan with you , agreeing to take responsibility for the loan should you default . The co-signer ’ s credit , income and debts will be evaluated to make sure they can assume payments if necessary . In addition to ensuring your co-signer has good credit , you should make sure they are aware of this responsibility and have sufficient income to cover the payment .
6 . Look for a Lower-Cost Home . Remember , you should only borrow an amount you feel comfortable repaying . You may need to look for a lower-cost home than you ’ re financially prepared to purchase and maintain .
For more information and additional resources , visit www . myhome . freddiemac . com .
If your home loan application is denied , don ’ t panic . There are ways to build your eligibility so that next time , your mortgage application is more likely to be approved .
( StatePoint )
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