Mortgage Rejection – Help For a Denied Mortgage Loan Application

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By mroconnell


Judging by the sour look on Benjamin Franklin's face, he probably just had a meeting with his lender.
Judging by the sour look on Benjamin Franklin's face, he probably just had a meeting with his lender.

Mortgage Rejected? How to Proceed:

This is an easy-to-read article about what you can do if your mortgage is rejected. I'm not a lawyer and a lot of this article discusses just the basic, general advice I can give based on Federal US law. Consult an attorney to find out additional rights or limitations you may have in your state or country. This is just a starting point from which you might consider alternative methods of dealing with your mortgage rejection.

If the lender makes a counteroffer (e.g. higher interest rate or smaller loan) your loan application is not technically rejected yet. Many of these protections only apply if you deny the counteroffer. Consider your options carefully as the counter might be amenable to you!

Financial institutions like the Bank of England might seem monolithic, but they are there to work with individuals.  Get educated and get active, and you'll get that loan!
Financial institutions like the Bank of England might seem monolithic, but they are there to work with individuals. Get educated and get active, and you'll get that loan!

Get an Answer

Within 30 days of your application, the lender is required to do a lot of things. The lender has to

  • make a reasonable effort to gather relevant information

  1. the appraised value of the property in question
  2. your credit history
  3. your income
  4. stability of your income and employer
  • give you a written answer if you are rejected

If a lender fails to do this, it may be grounds for legal action and you should contact an attorney.

Get it in Writing

When an application is rejected, the lender is legally required to deliver this decision in writing. If you have been flat out denied, you should immediately ask for the specific reasons for the rejection. As long as you make a formal written request within 60 days of the application, the lender is often legally required to tell you exactly why your application was denied. They have to be very specific. Saying "You didn't meet the minimum requirements" is too vague and they are legally required to give you a more specific answer like "Your salary was too low." or "The loan to value ratio was too great."


Credit History Can Make or Break Your Mortgage Application

Verify Your Credit Report

If the reason for rejection is a bad credit history, you have a legal right to know the name, address and phone number for the consumer reporting company that the lender used to get your credit report. This company will provide you with a free copy of your credit report as long as you make a written request within 60 days of your application. If you wait too long they can charge you a nominal fee (like $10). If there is incorrect information in the consumer report, you can dispute the claim and the company has to launch an investigation. If another company is furnishing the disputed information to the consumer reporting company, they also have to investigate. If these investigations lead nowhere, you can place an explanation of the disputed claim in your credit report.

Verify Your Property Appraisal

Another reason your loan can be rejected is a low property appraisal value. If the lender appraised the property you want to mortgage, you can get a copy of the appraisal from them. Make sure the appraisal is accurate. It's hard for a nonprofessional to do this, but you can at least check objective things like square footage, number of bathrooms, any damage, etc.

You also need to make sure that the appraiser didn't use any illegal standards like the racial composition of the neighborhood or the religious beliefs of the building's tenants. If you think anything in the appraisal is suspicious or sounds like coded discriminatory language (I heard a realtor say a building was "not near any KFCs" which I didn't immediately realize was her way of implying that this particular neighborhood was racially homogenous!!).


Summary of the NCRC House Testimony

Resubmitting Your Mortgage Application

You're allowed to resubmit! You don't want to apply for more than a few mortgages in a span of several months because that will set off its own set of red flags in the lenders' computers. But as long as you have only been denied once or twice, you can strengthen the weak points of your mortgage application and resubmit.

Bookmark this page today (hold down the CTRL key and press D and you'll be able to visit this website any time because it will be in your bookmarks file at the top of the screen), and try to work on each of these steps a little bit each day. You have to keep copies of everything you've written to the lender and everything you've received back as they may be very important in resolving (or avoiding) a dispute.

Managers recognize when people hold on to documentation and strengthen the weaknesses in their application, and this may play a role in their decision process. They want to avoid conflict and legal entanglement as much as possible, and a borderline rejection might turn into an approval just because the manager knows you've organized yourself well. Ask the right questions and always keep copies of your correspondence.


Mortgage Calculators

Get professional help with mortgages

There are many ways to get advice about mortgage applications in the future. Don't go in unprepared. With the right counsel or access to the right piece of software, you can know whether or not the mortgage application will be approved before you ever submit it.

Banks are just using calculations based on pretty well-established formulae, and a professional or a professional tool with the right training can often approximate their decision based on current market trends very well. Consider getting pro help!

Some loans get special considerations that other loans ignore, so you want to find somebody who knows what they're doing. Often times, there are Federal bureaus designed to refer you to an attorney that specializes in this field. You can also call your state bar and they will refer you to a lawyer. That lawyer may charge you a fee for consultation, but that one-time upfront fee might be the difference between being a homeowner and being a renter for life.


Alternative Loans: FHA and VA Loans

Remember that some Americans qualify for specialized loans.

The Federal Housing Administration insures several kinds of loans. To see if you qualify, start by contacting several different lenders and asking them if they offer FHA-insured loans. Note that the FHA itself only INSURES the loan. The lender is still the one setting the rate and other terms. This is a neat arrangement because the FHA guarantee makes it easier for both the lender and the borrower.

VA loans are designed to ensure that all veterans or spouses of veterans (unless they remarry) receive mortgage assistance.

Comments

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funride profile image

funride  says:
3 months ago

Great hub, O`Connell. I´m sure it will help many people who are having this mortgage difficulty. Thumbs up ;)

mroconnell profile image

mroconnell  says:
3 months ago

Thanks, funride. I hope you're right because this is important legal information that loan-seekers need to learn!

Karen Ellis profile image

Karen Ellis  says:
3 months ago

Wow, lots of stuff I didn't know. Very good hub.

Shirley Anderson profile image

Shirley Anderson  says:
2 months ago

Very good and information article, Ryan. I'm going to link to it in my blog entry today or tomorrow. I know someone who suffered mortgage rejection, and though we're from different countiies, I think your article might be helpful. Thx.

pjdscott profile image

pjdscott  says:
2 months ago

Super article with great info and practical advice. It is easy to read and informative throughout. THumbs up!

Shirley Anderson profile image

Shirley Anderson  says:
2 months ago

Stumbled you.

RAMON  says:
4 weeks ago

I APPLIED FOR A VA MORTGAGE LOAN WITH COUNTRYWIDE MORTGAGE AND I WAS DENIED CREDIT.

CONSULTANT STATED JUST MAYBE, BECAUSE OF MY WIFES

LOW CREDIT SCORE AND HAVING TWO OLD DELINQUENT ACCOUNTS IN HER CREDIT REPORT. MY CREDIT SCORE IS FAIR WITH NO DELINQUENT ACCOUNTS.

INCOME IS OK FOR THE PURCHASE OF THIS HOME. MY WIFES LOW SCORE OF 594 AND THE TWO DELINQUENT ACCOUNTS FOR A $500.00 CREDIT LIMIT

WITH CAPITAL ONE CREDIT CARD ADDING INTEREST AND OVERLIMIT AMTS.

LAST TIME SHE CHECKED IN 2003-2007 IT WAS $2497. AND 2903. AMTS.

MY WIFE HAS IN THE PAST YEARS OFFERED TO PAY THE 500.00 .HER OFFERED HAS ALWAYS BEEN REJECTED. SO, ITS STILL GOING AND GROWING....

HOW CAN I HANDLED THIS?

mroconnell profile image

mroconnell  says:
4 weeks ago

Ramon, you shouldn't have to depend on a consultant to tell you why you MAY have been rejected. A lender is legally required to give you a letter in writing explaining the reason for your mortgage application's rejection. If you write a letter to your lender and send it certified and keep the proof that they received it, they have to tell you why you were rejected. Then you can pursue a way to fix the problem or legal action if the reason is unfair.

ROBERT  says:
4 weeks ago

CAN I BUY A HOME WITH MY VA WHEN

12 YEARS AGO MY HOME WAS FORECLOSE AND IT WAS THRU A FHA LOAN.?

mroconnell profile image

mroconnell  says:
4 weeks ago

I'm not sure, Robert! I hope you find help somewhere. Feel free to share any links you find relevant to the topic of dealing with mortgage rejection.

cityofchi  says:
4 weeks ago

Great information. Thanks!

Katie  says:
4 weeks ago

Great article! I'm a mortgage loan processor and underwriter. You are correct, within 30 days from the date of application the lender has a legal obligation to make a decision on a loan application. This determination must be made in writing and mailed to the applicant(s). If a lender denies your application due to inadequate credit scores, you can "repair" you credit and reapply. Tip: if this is the only reason for denial, lender is obligated to approve your application. FHA loans are available in all areas, however, there are sales price and loan amount restrictions. Also, FHA requires a 3% down payment. VA also has sales price and loan amount restrictions, but may require 0% down.

Ramon: if you can qualify without your wife's income (if she works), just have your lender take her off your loan application. Her credit report will still be "pulled", but the derogatory credit will not be considered. Otherwise, she should contact the collection agencies and make them an offer of payment. Usually they will take a considerable amount less than what is owed. Once the collections are paid have your lender order a Rapid Rescore credit report and this should raise her FICO score. You do not have to pay for the Rapid Rescore report, the lender MUST pay. And document everything with a paper trail.

Robert: Yes, you can. The foreclcosure may still appear on your credit report. Your lender will ask for a very thorough letter of explanation for the foreclosure. If your credit has been in good standing - no late payments, no collections or charge-offs, no late rental payments - it should be fine, assuming you qualify in other areas such as income.

Hope this helps. :-)

RAMON  says:
4 weeks ago

KATIE

THANK YOU !!

mroconnell profile image

mroconnell  says:
4 weeks ago

Thanks for that awesome information, Katie!

Linda  says:
4 weeks ago

My house was foreclosed 11yrs ago. This was reported to my credit bureau reports.

I notice this forecloser file stopped showing on my credit file reports 3yrs ago.

I am thinking of buying a house, but afraid to be rejected.

Will the mortgage lenders see what I see on my credit bureau reports?

Lennie  says:
4 weeks ago

How can a mortgage company deny an application because they can't verify an address? I have had a mortgage for 7 years with the same mortgage company and wanted to refinance since I have an adjustable rate mortgage. My property is in Chicago and I am in NYC. Excellent credit score, good income and property isn't that expensive. I have never missed a payment and the company takes payment from my checking account automatically. They have all of my information and I just got a rejection letter on June 23, 2008 (after starting the process May 1) indicating they can't verify my address when they have never had a problem contacting me at my NYC address for the last 5 years. I am soooooooooooo livid that I am trying to find ways to combat this issue. Is it because they are just not trying to lose money by giving me a fixed rate and want to keep me at an adjustable. Trying to figure out what to do next. Any help would be appreciated.

Lynette

mroconnell profile image

mroconnell  says:
4 weeks ago

Lynette, I think that's an acceptable excuse for them to deny you. On some level they might be looking for any excuse to deny your application, like you suggested. They probably sent a certified letter to your home or sent an agent/broker for an appraisal. And if your mail isn't being forwarded or nobody let in the appraiser, there could potentially be an excuse.

You should contact a professional in Illinois since I'm not a legal advisor. You might be able to mail the lender and ask what process got botched so that you can reapply and get the address verification correct.

Lynette  says:
3 weeks ago

Thanks for the comment. They sent an appraiser out and he was let in the property. They have all of my information and I have received EVERY piece of certified mail to my NYC address and work address. I am definitely trying to talk to the three people who helped me with the loan and after less than a week of being denied my file was purged and once I asked why purged in less than a week no one is returning my phone calls. I am in the process of writing a letter to them and will send to the address that my original re-finance offer came from. I am just peeved since this didn't happen when I got the arm mortgage and now that I am trying to reverse it they have an issue with an address when they know where to send any correspondence. Thanks for your input.

mroconnell profile image

mroconnell  says:
3 weeks ago

Lynette, that's very interesting. If an appraiser was let in and you responded to all the mail they sent you AND they purged the file that quickly, you might have cause. I wish these big lenders could be more reasonable and we didn't have to resort to legal threats to get things from them, but you might have every reason to proceed. Be sure to keep copies of all correspondence and send things certified from here on out. Also, try to find out if the company has an internal means of verifying their work and correcting mistakes. Give them a chance to say "oops, we put you in the wrong pile, here's your money" so that you can both avoid the costly and time-consuming legal process.

RAMON  says:
3 weeks ago

TO KATIE,

I am a little confused. It has not been 30 days since I last talked

to this VA Consultant from CountryWide Mortgage... I have not gotton anything

in writing.. Should I expect anything different in writing? Because,when I first applied to be pre-approve- this person told me I was denied right there and then...

I did call another lender...and I got pre-approved on the spot. I applied same way as I did with CountryWide , its a VA Mortgage Loan.

Looking for the right home.

Again, Katie, Thanks, great information!

mroconnell profile image

mroconnell  says:
3 weeks ago

Ramon, Preapproval isn't the same concept as actual approval.  If you actually submit an application to a lender, that lender cannot just say no as you're turning it in.  If you just state an intent to submit and they dissuade you, then there's no paper trail to prove they're in the wrong.  If you do things the long and boring way with lots of paperwork, they will have to commit to a reason to deny your application and this will give you a chance to improve and reapply. 

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We've come a long way since the early banking notes!  Keep up with the law and protect yourself.
We've come a long way since the early banking notes! Keep up with the law and protect yourself.
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