Mortgage Not Approved? Here’s How to Turn That ‘No’ Into a ‘Yes’

What to Do if Your Mortgage Application is Not Approved

Being denied a mortgage can be discouraging, especially if you’re eager to buy a home. However, a denial doesn’t mean your dream of homeownership is out of reach. There are several steps you can take to improve your chances and successfully secure a mortgage in the future. In this blog post, we’ll explore why your mortgage application may have been denied and what actions you can take to improve your chances next time.

1. Understand Why Your Application Was Denied

The first and most important step is understanding why your mortgage application was denied. Lenders typically provide a reason for the denial, which can be related to credit history, income, debt, or other financial factors. Common reasons for mortgage denial include:

• Low Credit Score: If your credit score is below the lender’s required minimum, you may be considered too risky.

• High Debt Service Ratio (TDS): If your monthly debt payments are too high relative to your income, lenders may deny your application.

• Insufficient Income: Lenders require proof that you have enough stable income to make mortgage payments.

• Incomplete Documentation: Missing paperwork or documentation errors can also lead to a mortgage denial.

Once you know the reason for the denial, you can take targeted steps to improve your application for the next time.

2. Improve Your Credit Score

If your credit score was a factor in your mortgage denial, the first step is to work on improving it. A higher credit score can help you secure a mortgage with better interest rates and terms. Here are a few strategies to boost your score:

• Pay Bills on Time: Timely payments are one of the most significant factors affecting your credit score. Make sure to pay all your bills on or before their due dates.

• Reduce Credit Card Balances: Lowering your credit utilization ratio (the amount of credit you’re using compared to your credit limit) can have a positive impact on your score.

• Check Your Credit Report: Review your credit report for any errors or inaccuracies. If you spot mistakes, contact the credit bureau to correct them.

  You can check your credit report for free here.

Improving your credit score takes time, but even small changes can make a big difference in your chances of approval.

3. Reduce Your Debt-to-Income Ratio

If your debt-to-income ratio (DTI) was the issue, focus on paying down existing debts to reduce the percentage of your income that goes toward debt payments. Lenders prefer to see a DTI of less than 43%, so reducing your debt can significantly improve your chances of approval.

Here’s how you can lower your DTI:

• Pay Off Debts: Prioritize paying off high-interest debts, such as credit cards or personal loans.

• Increase Income: If possible, look for ways to increase your income, such as taking on a second job or freelance work. This can help you qualify for a larger mortgage.

4. Save for a Larger Down Payment

A larger down payment can improve your mortgage application by reducing the amount you need to borrow and lowering your loan-to-value ratio (LTV). Lenders view borrowers with larger down payments as less risky, and it could make up for other areas of concern, such as a slightly lower credit score.

Even a small increase in your down payment can strengthen your application and improve your chances of approval.

5. Consider a Co-Signer

If your credit score or income isn’t strong enough to qualify for a mortgage on your own, consider asking a trusted family member or friend to be a co-signer. A co-signer with a better financial profile can help you meet the lender’s criteria. However, keep in mind that the co-signer will be responsible for the mortgage if you’re unable to make payments.

6. Shop Around for Different Lenders

Not all lenders have the same approval criteria, so if one lender denies your application, that doesn’t mean others will. You may want to consider working with a mortgage broker, who can shop around with different lenders to find one that’s more likely to approve your application.

Conclusion

A mortgage denial can be disheartening, but it doesn’t have to be the end of your home-buying journey. By understanding why your application was denied and taking steps to improve your financial situation—such as boosting your credit score, reducing your debt, and saving for a larger down payment—you can increase your chances of approval next time. If you’re unsure of where to start, consider working with a mortgage broker or financial advisor to guide you through the process and find the best options for your unique situation.