How to Bounce Back from Mortgage Rejection
Buying a home is stressful, and in many ways, it’s emotional too. You’re putting everything out there, your credit, your hopes and dreams, and your money, and throughout the process the many ups and downs can be draining.
This is especially true when you apply for a home loan and get rejected. Usually, this happens early, when first applying, or late, when you’ve found a home and are ready to close.
In the first case, the impact is not nearly as hard hitting as the second, but when you’ve already been pre-approved, have chosen a home, and are ready to close, only to get rejected, it can be devastating.
In either case, the first step to dealing with the rejection is to find out why it happened. Was it due to missing paperwork? If so, that can be easily corrected. You find what’s missing and hand it over.
Is it inaccurate paperwork? If your last pay stub is lower than the rest, then you might need to explain why it happened (were you sick, did you take vacation, etc) and see if the bank will accept another pay stub.
If you’re self-employed, the bank might not understand the way your income work, so try asking them for the opportunity to explain it.
Also, reference letters, especially from banks, can help overcome small hurdles. If you get rejected because they’re nervous about your lack of credit history, then a bank letter might be enough to push them over the edge.
Lastly, you can try to offer more money down, or if you’re really desperate, a higher interest rate or second mortgage. Banks like to reduce risk, which is exactly what a higher down payment and/or second mortgage will do – reduce the primary lender’s risk.
If none of these work, and they’re standing firm against the potential of offering you a mortgage, then your best bet is to try and keep working on your credit profile, but slowly using credit cards and loans to acquire and pay off debt. Never max out a credit card, but simply carrying a low balance is a good way to raise your score higher over a short period of time. Many times though, it isn’t your credit causing them to reject you as much as it is your job or income history, so try to keep a job at the same place until you are ready to try again.
If you think you’re getting rejected because you’re buying a home that is too expensive, then try using our free mortgage calculator to play with the numbers to see if you can reduce your monthly payment by $100. They like to see you pay no more than 30% of your monthly income on a mortgage payment; using the calculator will help you find this sweet spot. You can also check out our free mortgage calculator & mortgage quotes tool, which will get you five free mortgage quotes from local lenders. Just because you are rejected once doesn’t mean that you can’t try another lender!