I applied for a mortgage loan and my lender denied my application. What can I do? | Consumer Financial Protection Bureau (2024)

FAQs

I applied for a mortgage loan and my lender denied my application. What can I do? | Consumer Financial Protection Bureau? ›

What can I do? You should request an explanation from your lender as to why your application was denied. The lender is required to provide you this explanation in writing if you request it, and must to give you copies of the credit score upon which the denial was based.

The mortgage loan origination process often comes with many highs and lows, so try not to get too discouraged if a lender denies your mortgage loan. If that happens, take the time to understand why your mortgage was rejected, address the issue and explore other loan options.

Applying for a loan will impact your credit rating. This is because the application involves a hard credit search. However, the search won't say if you were accepted or refused, so a loan rejection won't damage your credit score any more than an approval.

Check with other lenders.

Some lenders specialize in loans for borrowers with credit and income challenges, or offer “manual underwriting” options that allow them to approve loans other lenders can't. Provide all of your paperwork and be honest with the lender about the reason for your denial, if you disagree with it.

You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.

Under the ECOA, it is unlawful for a lender to discriminate on a prohibited basis in any aspect of a credit transaction, and under both the ECOA and the FHAct, it is unlawful for a lender to discriminate on a prohibited basis in a residential real-estate-related transaction.

Key takeaways

Credit score, income and debt-to-income ratio are the main factors lenders consider when reviewing applications. Paying down debts, increasing your income, applying with a co-signer or co-borrower and looking for lenders that specialize in loans within your credit band could increase your approval odds.

If the buyer fails to get approval for a mortgage, the buyer can terminate the contract and remain entitled to their earnest money deposit, basically holding the bank responsible for the failed process.

Applying for a loan or credit card can affect your credit score, but if the lender denies your application, that decision won't have any bearing on your credit health.

How can I get a loan after being denied? ›

Check with the lender to see whether you need to wait a set amount of time, such as 30, 60, or 90 days. Before you reapply, however, consider the following tips to increase your chances of being approved: Find a co-signer: Some lenders encourage you to reapply within a short period of time if you can get a co-signer.

So being rejected for that loan can be both disappointing and financially impactful. With that said, it's important to use loan denials as an opportunity to assess and improve your financial profile. Find out exactly why you were rejected and spend some time analyzing the lender's reason for doing so.

If you struggle to get approved for a personal loan or need a loan in a hurry, products like emergency loan and payday loans may be appealing. All may come with higher interest rates and shorter repayment timelines than a standard personal loan.

You should request an explanation from your lender as to why your application was denied. The lender is required to provide you this explanation in writing if you request it, and must to give you copies of the credit score upon which the denial was based. Don't be discouraged. Another lender may approve you for a loan.

Deciding when to reapply depends on why you were denied in the first place. Your lender will likely be able to tell you how long you should wait before submitting another application, but generally it's wise to hold off until you correct the circ*mstances that lead to your first denial.

You can reapply – but it's important you understand why you were rejected and deal with these issues first. If you try and quickly apply elsewhere without addressing the problems, you might be rejected again. Lots of failed applications can negatively affect your credit score.

Insufficient Credit

If you don't have a significant credit report, you'll likely be denied. The first step to fixing this issue is to start building upon your credit history so that your lender has some idea of how you manage credit and debt. They want to see that you can responsibly pay it back.

Lenders have the ultimate decision-making power when it comes to who they will provide loans to. In general, though, if you're denied a personal loan, it most likely has to do with your credit score, income situation, or DTI. Before you apply, check the lender's criteria to determine if you're likely to qualify.

First, find out what caused the lender to turn you down. If a lender rejects your application, it's required under the Equal Credit Opportunity Act (ECOA) to tell you the specific reasons your application was rejected or tell you that you have the right to learn the reasons if you ask within 60 days.

Your income was insufficient or unstable

In addition to your credit score and DTI, lenders also consider your income when making a decision on loan approval. Essentially, they want to ensure you have enough money coming in to keep up with your monthly payments so you don't default on your loan.