Being denied for a mortgage can be upsetting, but it doesn’t have to be the end of your home loan search. Here are some simple things you can do to be better prepared the next time you put in a loan application.

Find out what went wrong

The lender will usually tell you why your loan application was denied and sometimes the reason is highlighted in your denial letter. Once you know what went wrong, you can take steps to fix it.

The most common reasons for mortgage denial

A low credit score is the number one cause of loan denial. The good news is that it’s one of the easier problems to fix. Depending on how weak your credit is, you may be able to shop around and find a lender with a lower minimum credit score.

You can also look into special mortgage programs that help buyers with poor credit to get approved. For example, if you applied for a conventional loan, it could be that switching to an FHA loan will get you approved.

Of course, you can also take the time to improve your credit score by paying down your credit cards, paying your bills on time and refuting errors on your credit report.

Some other common reasons for mortgage denial include:

• Too much debt: A borrower who has a lot of debt poses a risk to the lender. If your debts are high, you’ll likely need to pay them down before applying again.
• Insufficient or poor credit history: If you have yet to build a credit history or your credit history has too many issues, you may need to work at improving your credit history before you can be approved.
• Debt-to-income ratio (DTI): If your DTI is too high, you’ll need to increase your income, lower your debts or find a mortgage program that allows for a higher DTI.
• Undocumented income: If you are claiming income but cannot provide documentation, your lender may not count this income as valid.
• Self-employment issues: Typically, self-employed individuals must show a minimum of two years of successful self-employment before they qualify for a mortgage.

Keep trying

Every lender has slightly different approval requirements and processes. Don’t be discouraged if you’re denied, just keep trying and apply to new lenders. You can also meet with an experienced mortgage broker to get professional advice on which lenders will be more likely to approve your loan.

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