Mortgage turndown is not the end

Q:

We went to the bank and were preapproved for a mortgage amount. We found a house in our price range, but when we went back to the bank for the final loan guarantee, they turned us down. What can we do?

A:

Try again. If you have been turned down for a mortgage or a refinance, don’t give up without knowing why you were denied.

The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing within 30 days why the applicants were denied credit.

Make sure you get this notice from your lender. Review it carefully to see why you were denied. If your denial is based on problems in your credit report, the lender must give you the name and address of the credit agency that provided the information.

You should also ask the loan officer you were working with why you were denied, especially after receiving preliminary approval.

Once you have determined why you were denied, you can set about trying to remedy the problems.

If the credit report information is inaccurate, you need to get in contact with the credit reporting agency to correct the error and let your lender know this and see your documentation.

If your credit report is correct, and your credit history is indeed less than acceptable, you need to bite the bullet and accept the fact that you are going to have to put your house dreams on hold for at least a year while you establish a good credit and payment track record.

If your credit score is only a little bit below the lender’s threshold, you may be able to close the gap by paying down some credit card balances.

Ask your lender about this, but be careful that you don’t dip into your down payment amount or money set aside for closing costs.

Speaking of down payment, a larger down payment may get you over the top. Ask your lender. Perhaps you could borrow the additional sum from a relative.

Is your appraisal too low? Look that document over carefully to make sure it accurately reflects the new home.

Review the recent “comparable sales” the appraiser used to compare to the home. Are they truly comparable to the home?

Do you know of other recent comparable transactions that the appraiser did not include? If so, document them and ask your lender for a reconsideration of value.

Be prepared to dial back your dream house. Maybe you simply need to look for a cheaper home. You could also try shopping around for a different lender.

I know of a couple who was preapproved by a lender only to be turned down after putting down a deposit on a house. They went to another lender, in this case, a local credit union, whose underwriting criteria were less stringent. They are happily moved into their new home.

The bottom line is don’t be discouraged if you were turned down for a mortgage. It doesn’t necessarily mean you won’t be able to get one in the future or somewhere else.