Here’s how to pick yourself up after your mortgage application is rejected.
- There are different reasons why your mortgage request may not get approved.
- By boosting your credit, paying down debt, and raising your income, you can set yourself up for a “yes” the next time around.
So you saved up a pile of money for a down payment for a home, researched mortgage lenders, and submitted a home loan application, only to get a big fat no in return. And now, you’re just about ready to cry, scream, or give up on homeownership altogether.
There are different reasons why a mortgage lender might choose to deny you a home loan. If you’ve been rejected, here are three essential moves to make.
1. Boost your credit score
It takes a minimum credit score of 620 to qualify for a conventional mortgage. But some lenders can opt to set higher standards. If your credit is poor or fair, it could be the reason why you were denied a mortgage. Raising your credit score could be your ticket to getting your next application approved.
There are several steps you can take to raise your credit score. First, be sure to pay all incoming bills in a timely manner. Second, pay off some credit card debt if possible. Doing so will lower your credit utilization ratio, which is an important factor that goes into calculating your credit score. Finally, check your credit report thoroughly, and if you spot errors that could be dragging your score down, work on getting them corrected.
2. Pay off some existing debt
Your credit score isn’t the only number a mortgage lender will pay attention to. Your debt-to-income ratio is just as important. That ratio measures the amount of existing debt you have relative to your income. And as you might imagine, the higher that ratio is, the less likely you’ll be to get approved to borrow for a home, as that signifies you’re already borrowing quite a bit.
There are two steps you can take to lower your debt-to-income ratio — pay off debt and boost your earnings. Both are worth doing. But if you’re able to knock out some credit card debt in particular, it might also help your credit score improve, so that’s really a move you’ll want to make in this situation if possible.