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What Do I Do If My Loan Is Rejected?
If your application is accepted, congratulations. If not, don't feel as if you're alone. Lenders have become very fussy. More than 2 million mortgage applications were rejected last year, according to the Federal Financial Institutions Examination Council.
There are things you can do, though, to help improve your chances next time:
Understand what went wrong. Sit down with your loan officer to ask why your application was rejected and what you can do to improve your chances. Remember, they are on your side! They want you to get the loan too or he won't be paid.
Try another lender. Another lender may offer a different loan program with guidelines that better fit your situation. Credit unions and small local banks often have more freedom to work with a client. Look for a lender that does not sell its mortgages on the secondary market; these loans may be easier to qualify for, although they may carry higher fees and interest rates.
Revisit the appraisal. If your problem is a too-low appraisal, you and your loan officer are prohibited by federal law from ordering a new appraisal. Occasionally, though, an appraiser will reconsider when given new evidence. If you know of nearby homes like yours that recently sold for more, your real-estate agent may be able to offer the appraiser evidence that persuades her to revise her valuation. Otherwise, the only way to get a different appraiser to value your home is to make a fresh mortgage application.
Repair your credit. If your credit score was slightly too low to qualify, paying off a credit card or loan may help. It takes up to 90 days for the result to show up in your score. Other strategies that take longer are:
Close credit card accounts you're not using.
Make every single payment on time; eventually, late payments will "age" off your credit score.
Reduce the proportion of your available credit that you're using.
Improve your debt-to-income ratio. Big monthly payment obligations compared with your income jeopardize an application. Fixes include:
Paying off an outstanding loan by, for example, selling your newer car and using the proceeds to get a cheaper vehicle and pay off the loan.
Asking a free credit counselor approved by the Department of Housing and Urban Development (find one here) for help consolidating your debts. (The Federal Trade Commission tells how to repair credit and avoid scammers).
Borrowing against your 401(k) to pay off high-interest revolving or credit-card debt.
Before you begin the application process, it is a good idea to get a copy of your credit report. This can be obtained from one of the three major credit bureaus: Experian, Equifax, and TransUnion, just click on the free credit report link in the menu.