After a Rejection

The New York Times
by Vicky Elmer

JUST because your mortgage application has been rejected doesn’t mean you won’t eventually get funding.
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Some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.

But before you retry, “you just have to look and see the reasons that it’s turned down,” and address these issues, said Marisol Torruella, a loan originator with the New York Municipal Credit Union, referring to the original application.

The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing, within 30 days of their decision. If it’s based on a problem in your credit report, the lender must tell you the name and address of the credit agency that provided the information.

You could also talk to the loan officer who turned you down to see how close you came to being approved. Sometimes the gap is small, and could be bridged with, say, a few thousand dollars more for the down payment, or another home appraisal.

Still, it may be worthwhile to shop around for other lenders. You may want to go to a mortgage broker or an online network like LendingTree or Zillow’s Mortgage Marketplace. An experienced broker or banker can discuss alternative products and loans available from the Federal Housing Administration, which has less stringent requirements, though applicants may have to take out mortgage insurance if their down payment is low.

“There still is a robust level of competition in the industry,” said Michael Fratantoni, the vice president for research and economics at the Mortgage Bankers Association.

A credit union might be a better bet for some. Credit union loan committees may permit better deals for longtime members; they might also modify loan terms for borrowers they already know, Ms. Torruella said. “If we are already holding your mortgage,” she added, “we will work with you.”

But if you’re a first-time buyer, you may need to scale back your aspirations. According to Ms. Torruella, one reason people get turned down is that they try to buy more property than they can afford based on current incomes.

Borrowing from a relative or friend, or selling another holding, might help applicants come up with a larger down payment and afford their dream home.

Applicants should also look at ways to strengthen their financial picture.

“Buying a home is a long-term goal,” said Erin Lantz, the director of the Zillow Mortgage Marketplace. “It’s worth spending the time to invest and pay your bills on time.” Any errors found on your credit report should also be corrected, she said.

If your credit is less than stellar, “you have to re-establish 12 months’ of good credit, good payment terms,” said Gary DeTrano, a mortgage broker at the Walden Group in Mineola, N.Y. If your FICO score, for example, is 20 or 30 points below a bank’s requirement, you may be able to inch it up by paying down your credit-card balances, he pointed out. Just don’t use up the money you need for a down payment or closing costs.

Even those applicants with steady income and good credit may not qualify today if they have big expenses, Mr. DeTrano said, like loans to help pay for college for their children.

If all else fails, he said, borrowers might want to consider asking someone with a strong financial track record to co-sign the loan.

Ms. Lantz, meanwhile, says those looking to apply for a mortgage should take the time to learn about all the available loan options. She noted that a recent survey of prospective buyers conducted by Zillow found that 42 percent were unfamiliar with F.H.A. loan qualifications.

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