Mortgage Rejection – Help For a Denied Mortgage Loan Application
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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!
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
- the appraised value of the property in question
- your credit history
- your income
- 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
You're protected by the law
- Fair Credit Reporting Act
This is a PDF version of the Fair Credit Reporting Act. If you have time, it details all the ways you can petition to correct/change your credit report. - Americans for Fairness in Lending
This organization is devoted to getting individuals fair treatment before lending institutions. They have a lot of great links and a news feed about lending law. - Home mortgages can be racially discriminatory
This New York Times article looks at discriminatory practices in home mortgage lenders. By learning how people have been caught in the past, you increase the odds that you'll get treated fairly!
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!!).
Know your rights and the lender's obligations
- National Association of Consumer Advocates
This is an organization of 1000+ attorneys that specialize in protecting consumers. They are licensed to refer you to specific lawyers that specialize in mortgage litigation. - Federal Reserve Board links
The FRB has compiled some links to help potential borrowers understand the intricacies of mortgage law. It explains the details of the application process, your rights under Federal law, and what agencies you can contact during the process. - National Community Reinvestment Coalition
This is a group that helps people avoid mortgage discrimination and get the loans they need to get and keep homes.
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.
Know the average mortgage rates
- Adjustable Rate Mortgage Rates from the Past
This is an index of what ARMs have looked like in the past decades. By seeing what was reasonable a couple of years ago, you can get some insight into what banks are expecting of you today. - FHA loan calculator
This loan calculator can tell you exactly what to expect from an FHA loan. Note that FHA loans are only applicable to specific areas and borrowers that qualify for Federal assistance verified by the Federal Housing Administration.
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.
FHA and VA Loans
- How FHA Loans can help you
This is a site at Housing and Urban Development, the bureau that oversees the Federal Housing Administration insured loans program. It explains exactly what FHA loans are and how they might help you. - VA Loans
The Department of Veteran Affairs offers a lot of assistance in obtaining VA loans for Veterans and spouses of Veterans. This site will tell you how to go about applying if you qualify. - Is a VA Loan Right for You?
Learn about VA loans from another HubPages author who has a lot of experience with this type of financing.
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.
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Comments
Thanks, funride. I hope you're right because this is important legal information that loan-seekers need to learn!
Wow, lots of stuff I didn't know. Very good hub.
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.
Super article with great info and practical advice. It is easy to read and informative throughout. THumbs up!
Stumbled you.
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?
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.
CAN I BUY A HOME WITH MY VA WHEN
12 YEARS AGO MY HOME WAS FORECLOSE AND IT WAS THRU A FHA LOAN.?
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.
Great information. Thanks!
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. :-)
KATIE
THANK YOU !!
Thanks for that awesome information, Katie!
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?
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
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.
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.
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.
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!
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.
Hey I found your hub very helpful. Great tips for anyone's next loan/mortgage application.
Awesome hub! Advising consumers to keep up with their credit reports can make or break a good mortgage deal. AnnualCreditReport.com should be bookmarked on every American's computer.
Thanks for sharing the valuable information. Here is an information about mortgage calculator http://hubpages.com/hub/MortgageCalculator Iam sure that this will be very useful for you.
I was just recently denied for an FHA loan due to 30 day lates reported by my timeshare who claimed they would not report to any credit agencies. They had never reported delinquent after 8years of having it and I have been delinquent more than a few times within the past 8 years, but until last year they started reporting. I tried to have them remove the marks, but they refuse. All of my other creditors show current and paid on time except them whom they claimed would never report any derogotorries but they did after this many years. According to my broker, the only reason they are rejecting the loan is due to 3, 30 day lates reported by my timeshare and since we have a bankruptcy we were not allowed to have any delinquencies in our credit report. We were told we have to show good credit since the date of the bankruptcy. Are there any other type of loans out there that are less strict that will accept bankruptcy situations? Other than these marks from the timeshare, my credit is very good. I am in good standing with all of my other accounts and since then have paid off my reamaining balance with the timeshare. Any help?
Wow! Great hub. I was unknown to this valuable information. Its a very good mortgage deal. Its very clear what Lenders have to do while dealing with mortgage. Some questions remains as it is but this hub gave me all the answers of my potential questions. Thanks a lot!
While I have not yet been rejected, we signed our loan documents 23 Oct for a VA loan through US Bank. They have asked for additional documents, the last time only a week ago. I keep being told it is in underwriting (since Nov 21) and we should see a clear to close anytime now (been told that since 1st week of December). What is taking so long? Is this normal? Or, should I be expecting a rejection notice? This is our first time we have applied for a home loan. My credit is ok, score of 670. I do have many debt obligations (past young and dumb credit card uses). But, we have never had a late payment, no judgments. Should I be worried? Christmas is less than two weeks away....
Does anyone know if I can seek legal action if I was denied for none of the above stated but was already pre-qualify for a loan and did home apprasial. My DTI is 18%, I have more than 3% fha down payment, employment history is great, credit score is good.
Reason with no writen explanation: 06-07 IRS tax income was readjust.
We have all proven W2's but when my wife and I got married in 07, we had changed her name and per CPA, IRS had made some adjustment do to her name not matching W2's. Therefore, our tax only had my income and my wifes income was totally obsoleted from our tax.
I just found this out when the lender contacted IRS for verification. Not sure if this is a legitamate reason to denied loan at the last minute.
Thanks for any comments
Thanks for the informative hub! You explained very nicely and in detailed that how to proceed after rejecting mortgage application. Liked it very much!
Thats hell lot of information. How do you know so much about this ? Just kidding :-) you have done a nice job.
can the lender denied me when ihave aw2 for one job and been on the other with a1099
can the lender denied me when ihave aw2 for one job and been on the other with a1099
That's a tough one, aristide , typically they like you to be in the same line of work, but if you went from self-employed and then a w2, they might require more info. You'll have to check with your local mortgage broker and ask if to check around. I am sure that you will be able to get a loan because theirs a lot of different lenders out there and they all have different policy.
Great page. It helps me somewhat that I'm not the only one that is having issues with a lender
I am in the midst of working on getting an FHA loan. We were supposed to close on May 11th (in 5 days) and my mortgage lender said, "no go." Supposedly, things were fine. We were trying for a Rural Development loan, and I make too much money. Kind of thought, our loan officer should know that, but we wasted two weeks with that. Now, we have switched gears and are going for a FHA loan. In order to get my debt to income ratios where they need to be, we need to use my 1099's from a counseling job that was independently contracted to do for 2 years. Also, we are moving to another state where I will be working as an assistant professor, and we are using that monthly income, as well. The debt to income are close (because of school loans), but I have great credit score 730, and a perfect history (I have owned a house for over 12 years with no late payments). I am frustrated because homes go quickly in my price bracket and I am irritated with my lender because she doesn't communicate very well with us. I thought things were fine, and according to her they were.... How hard is it to get through FHA underwriting.... I am waiting. I need to tell the sellers that we are going to close later and I hope they understand......
I am making good money..... and I am frustrated..... What can I do I don't want to lose this house!
I do not know why Wells fargo denied my loan. I applied for the loan and after the house was appraised, the bank gave me a counter offer which lower the original value of the loan. I accepted the offer and send the signed document to the broker. I provided every documents to the broker who gave them to the underwriter. Last Friday the bank's lawyer called me and wanted to set up a closing date. Two hours later the lawyer called back to cancel the closing because he did not have the cemas for the loan. The bank lawyer told me that the closing will be sometimes next week; I have the message on my voice mail. The following week the broker called and tell me that my loan was denied. He could not give me a reason because he said the bank did not give him one. Is it normal practice?. I missed the opportunity to refinance at a great rate. Is my right violated?. I want to take legal action against the bank for stress and aggravation they put my wife and I through
I AM A DIRECT LENDER AND STILL DOING FHA AND CONFORMING LOANS WITH A 580 FICO ALSO: NO DOC LOANS..601 MINIMUM FICO PURCHASE OR REFI PRIMARY RESIDENCE,INVESTMENT PROPERTY, SECOND HOMES, COMMERCIAL.. EMAIL ME: FICO580@GMAIL.COM
funride says:
14 months ago
Great hub, O`Connell. I´m sure it will help many people who are having this mortgage difficulty. Thumbs up ;)