What to Do if Your Mortgage Application is Denied

Moshe Farber
28, Apr 2023

When your mortgage application is denied, it can be a stressful situation. However, there are several steps you can take to understand the reasons for the denial and potentially improve your chances of approval in the future. 

Before you read on, please note that working with a reputable and experienced mortgage brokerage like ASTAR Home Capital will go a long way toward preventing this situation from ever occurring. 

If your mortgage application is denied, the first thing you must do is figure out why you were denied. Review the denial letter or contact the mortgage lender to understand the specific reasons for the denial. It could be due to factors such as credit history, income, employment, debt-to-income ratio, or down payment. Understanding the reasons will help you address them effectively.

Some common reasons for mortgage application denial are as follows:

Insufficient income: Lenders assess an applicant’s income to determine their ability to repay the mortgage. If your income is not sufficient to meet the lender’s requirements or if you have unstable or inconsistent income, it may result in a denial.

High debt-to-income (DTI) ratio: Lenders consider an applicant’s DTI ratio, which is the percentage of their monthly income that goes towards paying debts. If your DTI ratio is too high, it may indicate that you have too much debt relative to your income, which can result in a mortgage denial.

Employment history: Lenders may assess an applicant’s employment history and stability of income. If you have a short employment history, gaps in employment, or irregular income, it may be a factor in a mortgage denial.

Insufficient down payment: If you’re applying for a conventional mortgage, lenders typically require a down payment of a certain percentage of the home’s purchase price. If you don’t have enough funds for the required down payment, it may result in a mortgage denial.

Property-related issues: Lenders also assess the property being purchased, including its condition, location, and appraised value. If the property does not meet the lender’s requirements or if there are issues with the appraisal, it may result in a mortgage denial.

Legal or credit issues: Applicants with legal issues such as bankruptcies, foreclosures, tax liens, or credit issues like outstanding judgments, may face mortgage denial. Here are 5 ways to maintain or improve your credit score: 5 Ways to Improve Your Credit Score

Loan program requirements: Different mortgage programs have varying requirements, and if you do not meet the specific criteria of the loan program you’re applying for, it may result in a denial. For example, certain government-backed loans may have stricter guidelines.

Incomplete or inaccurate application: If your mortgage application is incomplete or contains inaccurate information, it may result in a denial. It’s important to provide complete and accurate information to the lender during the application process.

Lender’s discretion: Lenders have discretion in evaluating mortgage applications, and they may deny an application based on their own internal policies, risk assessment, or other factors.

It’s essential to understand that mortgage denial does not necessarily mean you won’t be able to get a mortgage in the future. 

By addressing the reasons for denial, improving your financial situation, and working with professionals, you may be able to increase your chances of getting approved for a mortgage in the future. 

Here are 6 ways you can improve your chances of mortgage application approval in the future: 

  1. Review your credit report: Obtain a copy of your credit report and review it for any errors or inaccuracies that may have contributed to the mortgage denial. If you find any errors, dispute them with the credit reporting agencies to have them corrected.
  1. Improve your credit: If your credit score was a factor in the mortgage denial, take steps to improve your credit. This may include paying off debts, making all payments on time, reducing credit card balances, and avoiding new credit inquiries.
  1. Address other financial issues: If other financial factors contributed to the mortgage denial, such as insufficient income or a high debt-to-income ratio, work on improving those areas. This may include finding ways to increase your income, reducing your debts, or lowering your monthly expenses.
  1. Seek alternative options: If your mortgage application was denied by one lender, consider applying with other lenders or exploring alternative mortgage programs, such as government-backed loans like FHA or VA loans, which may have more lenient requirements.
  1. Save for a larger down payment: If a low down payment was a factor in the denial, consider saving for a larger down payment. A larger down payment can improve your loan-to-value ratio and may increase your chances of mortgage approval.
  1. Get professional help: If you’re struggling to understand the reasons for the denial or how to address them, consider seeking help from a financial advisor or a mortgage broker who can provide guidance and assistance. 

Above all, remember to be patient and diligent in your efforts to address the reasons for the denial and improve your financial situation. Keep in mind that mortgage lending guidelines can vary among lenders so it’s best to explore different options and work with a professional, such as an ASTAR mortgage broker, to increase your chances of getting approved for a mortgage in the future.

Looking for a mortgage broker who will work tirelessly on your behalf? Reach out to one of our AllStar ASTAR Home Capital mortgage brokers today! Email info@astarteam.com or call 888-ASTAR-11 (888-278-2711) to start the loan application process.

When you apply for a mortgage through ASTAR Home Capital, we always begin the process with a soft credit check, and diligently cover every base to ensure you will get approved. There’s virtually no chance you will not get approved when you apply with ASTAR, because after reviewing all of the necessary paperwork and conducting the soft credit check, we already know if you would get approved or not. If there’s a chance you might not get approved, we let you know beforehand so you don’t have to worry about getting denied, and we advise you on steps you can take to ensure you will get approved in the future. 

Ready to hear those magical words, “Your Loan’s Approved”? Reach out to one of our AllStar ASTAR Home Capital mortgage brokers today! Email info@astarteam.com or call 888-ASTAR-11 (888-278-2711) to start the loan application process.

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