5 Actions You Can Take if a Lender Denies Your Loan Application

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Serious homebuyers know the importance of getting a mortgage pre-approval first before touring a prospective home. Getting a mortgage pre-approval means that a lender has thoroughly checked and verified your credit, and for a period of time, determines that you could borrow the amount you’re applying for to buy a home. Lenders, however, have recently become stricter with lending requirements because of the uncertainty that this COVID-19 pandemic brings where millions of people have filed for unemployment claims.

During this time of national health crisis, homebuyers could face challenges when applying for a mortgage. As someone who’s serious to buy a home, you may find it frustrating if a lender denies your loan application. According to the Federal Trade Commission, you have the right to do the following as a homebuyer or someone who want to refinance your mortgage:       

  1. Know whether the lender approved or rejected your application – After submitting your complete application, the lender must inform you within 30 days if your application has been approved. The lender is also required to tell you in writing if your application is denied.    
  2. Understand why the lender rejected your application – If you seek an explanation of why your application was rejected, the lender must explain to you within 60 days the specific reason(s) why your application was turned down. If a lender reasoned out that you didn’t meet its minimum standards, you must find out why. For example, lenders may deny you a mortgage if your income is too low or if you have a very short and inconsistent employment history.   
  3. Understand why you’re getting less favorable offers – If a lender offers you a high interest rate or a mortgage amount that’s smaller than what you’re applying for, you have the right to find out why as long as you don’t accept the counteroffer. For example, a lender could offer you a mortgage with a high interest rate if you have a less than average credit score or if you have too many debts.
  4. Review lender’s property appraisal – A lender could deny your application if the appraisal comes back low, which means the property does not have enough value to secure the loan you’re applying for. If this happens, you have the right to check the accuracy of the information in the appraisal. A property could get a low appraisal if it’s in the market for a long time, broken fixtures are not getting fixed, or the property has a poor appearance.
  5. File a complaint if you suspect discrimination – The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act are the two federal laws that protect consumers from any kind of discrimination. Consider filing a complaint with the Consumer Financial Protection Bureau (CFPB) if you think a lender was unfair in treating your application. If you suspect that you’re being discriminated against, you may consult your state’s Attorney General’s Office to find out if a lender violated your right as a consumer.

What can you do to increase your chances of getting a mortgage?

Lenders typically would evaluate your application based on your income, expenses, debts, employment, and credit reports. For a start, you may want to have a good understanding of your credit reports and dispute any errors you find to help improve your score. Get all your documents including pay stubs, bank statements, proof of employment, and other documents you need for an application. If a lender asks you for additional documents, make sure that you provide them in a timely manner or write a letter to explain your situation. Lenders must consider all the documents you submit for your application.

Consult with an AEM loan advisor

Applying for a mortgage could be more difficult especially nowadays when dealing with a national health crisis. However, if you’re buying a home or refinancing your mortgage, a professional American Eagle Mortgage loan advisor can help you. Get in touch with us today to learn more about your options.

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