Rejection is always hard, no matter how you slice it — but being turned down for a mortgage has a particular kind of sting. Not only is it a hit to your ego, it’s also a hit to your ability to keep a roof over your head. It can feel disempowering.
But if you’ve recently been turned down for a mortgage, you’re not alone. In fact, almost 10% of home-purchase applications were denied in 2020 per data from the Consumer Financial Protection Bureau — a number that unfortunately increases, on average, amongst Black and Hispanic applications.
Fortunately, a mortgage loan denied in underwriting doesn’t have to be the end of your homeownership journey. There are some solid steps you can take to help turn around your mortgage loan decision and get the keys to your dream house ASAP.
What can I do if my mortgage application has been denied?
The first thing to do, if your mortgage has been denied, is to try and ascertain why, exactly. While there are many possible scenarios, certain circumstances are common enough that they should be looked toward first.
For instance, a high debt-to-income ratio, or DTI, is one of the most common reasons home loan applications are denied. Your DTI is calculated by totaling your monthly debt payments (including housing payments) and dividing it by your gross monthly income (Use Quontic’s free DTI calculator to help you determine your debt-to-income-ratio). If your DTI is too high, a lender may not believe you’ll be able to reliably make your monthly payments, which is why most financial institutions put a firm cap on eligible DTI rates for prospective borrowers (usually around 43%).
If your DTI is too high, finding ways to pay down existing debt before re-applying for a mortgage can stack the odds in your favor for being approved the second time around. But a high DTI isn’t the only culprit for a denied mortgage application.
How can I improve my credit score?
For many would-be borrowers, credit score and credit history get in the way of qualifying for a home loan. A bad credit score can get you denied — and a low credit score can stick you with high interest rates if you do get approved.
Of course, the question of how to raise your credit score is one that could easily be answered with an article all its own, but even small steps can go a long way.
For example, one of the biggest elements that goes into calculating your credit score is your on-time payment history — so make your payments on time each and every month, if you can. Additionally, carrying a large revolving balance can ding both your credit score and your DTI, so if you have credit card debt or other major loans to repay, chipping away at them could seriously help your case — not to mention helping you save up for a down payment, closing costs, and the inevitable cost of home repairs. You’ll likely want to avoid taking out many new lines of credit right before you’re applying for a mortgage, too; hard inquiries and new credit can ding your score and cause loan denial.
Finally, make sure your credit score actually reflects your behavior! Credit report errors are common and you can (and should) report fraudulent or incorrect items to the credit bureau reporting them so they can be corrected. You get free access to your credit reports on an annual basis through annualcreditreport.com, so if your home loan application has been denied, take time to pull them up and read through them. Catching credit report errors sooner than later is key to keeping your score from being dragged through the mud.
What options are available for borrowers with irregular income?
Maybe your credit score and DTI are pristine, but you just don’t have the same kind of straightforward, W-2 income to report to the lender. Getting a mortgage with irregular income can be a bit of a challenge, whether you’re a small business owner, independent contractor, or foreign national — but there are still options out there to discover!
In fact, no matter why your mortgage application was denied, Quontic might just be the “yes!” you’ve been waiting for. While we also have a fleet of more traditional home loan programs — including FHA loans, VA loans, and conventional loans — Quontic also offers Community Development Loans, or CDLs, which are specifically designed to help qualified borrowers who don’t have W-2s or tax returns to offer as part of their application.
Our holistic approach takes your entire financial situation into consideration rather than relying on the quick heuristics, and our mortgage specialists can help simplify what often seems like an overwhelming process. We help first-time homebuyers preapproved for new homes as well as helping existing homeowners refinance their real estate holdings, and our qualified loan officers can walk you through every step of the mortgage loan application process.
No matter who you are, you deserve a yes. Contact a mortgage specialist today to find out how to get started!
Quontic Bank is not affiliated with or acting on behalf of or at the direction of Federal Housing Authority (FHA) or any government agency or government sponsored entity. All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of April 8, 2022 & is subject to change without notice.