After a Mortgage Rejection

How to Move Forward After a Mortgage Rejection

For most buyers, getting a mortgage is an important part of the home buying process.  There are several mortgage programs and options that are available and that may be appropriate for you!

If at First You Don’t Succeed:  Try try again!  Very recently a client was told by his mortgage lender that his loan application was “dead in the water” and that there was no way to get a mortgage.  This client contacted another mortgage professional and closed escrow on his new house last month! 

There is (There May Be) Hope!  If you have been unable to get a mortgage loan, or if you do not believe that you will qualify for a mortgage loan at this time, read the article below to get another prospective.  There are SEVERAL MORTGAGE OPTIONS available; one just may be perfect to help you buy your new house now!

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After a Mortgage Rejection

By VICKIE ELMER

JUST because your mortgage application has been rejected doesn’t mean you won’t eventually get funding.  (This is very true! – TB)

Some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.

But before you retry, you just have to look and see the reasons that it’s turned down, and address the issues that caused the original application to be rejected.

The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing, within 30 days of their decision. If it’s based on a problem in your credit report, the lender must tell you the name and address of the credit agency that provided the information.

You could also talk to the loan officer who turned you down to see how close you came to being approved. Sometimes the gap is small, and could be bridged with, say, a few thousand dollars more for the down payment, or another home appraisal.  (It is very important to work with a knowledgeable lender who will explore all of the financing possibilities that may be available for you. – TB)

Still, it may be worthwhile to shop around for other lenders. An experienced broker or banker can discuss alternative products and loans available from the Federal Housing Administration (and others – TB), which has less stringent requirements, though applicants may have to take out mortgage insurance if their down payment is low.

“There still is a robust level of competition in the industry,” said Michael Fratantoni, the vice president for research and economics at the Mortgage Bankers Association.

A credit union might be a better bet for some. Credit union loan committees may permit better deals for longtime members; they might also modify loan terms for borrowers they already know, Ms. Torruella said. “If we are already holding your mortgage,” she added, “we will work with you.”

But if you’re a first-time buyer, you may need to scale back your aspirations.  One reason people get turned down is that they try to buy more property than they can afford based on current incomes.  (This is why it is so important to know what you will be able to afford before you start your house search. – TB)

Borrowing from a relative or friend, or selling another holding, might help applicants come up with a larger down payment and afford their dream home.

Applicants should also look at ways to strengthen their financial picture.  Buying a home is a long-term goal.  It’s worth spending the time to correct any errors that are found on your credit report.

If your credit is less than stellar, “you have to re-establish 12 months’ of good credit, good payment terms,” said Gary DeTrano, a mortgage broker at the Walden Group in Mineola, N.Y.  If your FICO score, for example, is 20 or 30 points below a bank’s requirement, you may be able to inch it up by paying down your credit-card balances, he pointed out.  Just don’t use up the money you need for a down payment or closing costs.

Even those applicants with steady income and good credit may not qualify today if they have big expenses, Mr. DeTrano said, like loans to help pay for college for their children.   (Another very good reason to consult a mortgage professional before starting your house search. – TB)  If all else fails, he said, borrowers might want to consider asking someone with a strong financial track record to co-sign the loan.

Those looking to apply for a mortgage should take the time to learn about all of the available loan options.  A recent survey of prospective buyers conducted by Zillow found that 42 percent were unfamiliar with F.H.A. loan qualifications.