6 Reasons Your Home Loan Application Was Rejected

A denied home loan application can mean more than just having bad credit.

Remember, you don’t have to take “no” for an answer. If your loan application is rejected, don’t let your disappointment prevent you from shopping around.It’s disappointing to learn that your application for a home loan has been rejected. But you have a right to know why: Sometimes the reasons given for rejecting loans are logical, and other times they may seem unfair.

Lending is a competitive business, and some companies are more flexible than others. Credit unions and community banks may take more time to analyze your particular situation.

Here are some common reasons for loan rejections and possible solutions.

1. You have a low credit score

Lenders look closely at your FICO score. Reports maintained by the major credit bureaus are used to determine your creditworthiness. Get copies of these reports to learn what you can do to repair any problems. It’s possible that the reports contain errors that can be corrected.

Each of the three major credit bureaus—Equifax, Experian and TransUnion—will give you one free credit report each year. If the reports show genuine problems, take responsibility for your past actions. Spend a year or two building a solid credit record. Become the type of borrower that lenders are eager to work with.

2. You’ve lost your job

If your employment status changes before your loan closes, it can short-circuit your home-buying plans. Lenders prefer applicants to have held their jobs for at least two years.

You can try another lender, but you may need to delay your purchase until you’ve been employed longer.

3. Your income is insufficient

Your lender may reject your application if it appears that you lack sufficient income for the size of the loan you are seeking. In such cases, you may inquire about making a larger down payment or bringing in a co-signer, such as a relative, with solid credit.

Consider whether you truly can afford the loan you are seeking. Perhaps you should consider buying a home that won’t strain your budget.

4. You haven’t provided consistent information

The lender may have found inconsistencies between the income listed on your application and the information obtained from your employer. Such issues will need to be resolved before you can win loan approval.

Make sure your application is accurate and complete before submitting it to a lender.

5. Your home appraisal was low

If the appraiser says the home you wish to buy isn’t worth the amount you are seeking to borrow, the loan will fall through. It may be best to accept the verdict and be grateful that you didn’t overpay.

An alternative is to use that low appraisal to negotiate a lower sales price.

6. You’re taking on too much debt

The lender may decide that your current debt obligations are too great to add the burden of the loan you are seeking. If you have adequate savings, consider paying off some or all of your existing debt before reapplying for the loan.

Updated from an earlier version by Emmet Pierce.