If Your Mortgage Application is Denied, Here’s What to Do Next

Mortgage applications can be denied for a number of reasons. Maybe you didn’t provide enough information on your application. Or maybe your credit score wasn’t high enough. Whatever the reason, don’t worry – there are things you can do to improve your chances of getting approved for a mortgage next time. In this article, we will discuss what to do if your mortgage application is denied and how to increase your chances of being approved in the future!

Mortgage Application Denied? Here’s What to Do Next

According to federal government data, thirteen percent of all purchase mortgage applications, a total of nearly 605,000, were denied in 2020. That’s a lot of people facing the same dilemma: what do you do if your mortgage application is denied?

While it can be disheartening to be told you don’t qualify for a mortgage, there are steps you can take to improve your chances of getting approved the next time around. Here are six things you can do if your mortgage application is denied:

1. Consult a Housing Counselor. The U.S. Department of Housing and Urban Development (HUD) offers free or low-cost counseling services to help you understand your options and prepare for homeownership. A housing counselor can also help you put together a new application that has a better chance of being approved.

2. Improver Your Credit. If your credit score is the reason why your mortgage application was denied, taking steps to improve your credit is a logical next step. This includes paying your bills on time, paying down debt, and using credit responsibly in the future.

3. Pay Down Debt. One factor that lenders look at when considering a mortgage application is the debt-to-income ratio. This ratio is calculated by adding up all of your monthly debts (including the proposed mortgage payment) and dividing it by your gross monthly income. By paying down debt, you can lower this ratio and make yourself a more attractive candidate for a loan.

4. Obtain Gift Funds. If you have family or friends who are willing to give you money towards the purchase of a home, this can help bolster your application and increase your chances of getting approved for a loan. Be sure to document any gift funds properly so that there are no issues later on down the road.

5. Find a Co-Signer. If you can’t qualify for a loan on your own, finding someone who is willing to co-sign on the loan with you may help you get approved. Just be aware that if you default on the loan, the co-signer will be on the hook for repayment, so choose someone you trust implicitly.

Freddie Mac provided additional advice and resources at myhome.freddiemac.com. If you’re still coming up short after trying these tips, Freddie Mac has some additional advice and resources that may be helpful.

Applying for a mortgage can be a rigorous process, but being denied doesn’t mean it’s the end of the road—there are steps you can take to improve your chances of being approved next time around. By consulting with a housing counselor, improving your credit score, paying down debt, obtaining gift funds, finding a co-signer, or looking for a lower-cost home, you’ll put yourself in a much better position to successfully navigate the mortgage process and achieve your goal of homeownership.

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