You're Turned Down for a Bad Credit Mortgage: Now What?

By Barbara Marquand
Mortgage Credit Problems Columnist

Home loans for people with bad credit are tough to get in today's market, so take solace in the fact that you're not alone if you've been turned down for a mortgage.

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The Mortgage Bankers Association in Washington D.C. estimated last year about half of mortgage applications were getting turned down.

A rejected application for a bad credit home mortgage might feel like a kick in the gut, but it's no reason to give up. Follow these steps after you've absorbed the bad news.

1. Your Bad Credit Mortgage Application is Turned Down: Ask Why

Lenders are required by law to let you know within 30 days why they rejected your application for a mortgage. Read the "adverse action" notice from the lender, which should provide details of why. A variety of reasons could be behind the decision. Your income may not be high enough for the loan, your credit score might be too low, or perhaps you're carrying too much debt.

2. How Can You Qualify Next Time for a Poor Credit Mortgage?

Analyze the reasons your application was turned down and look for solutions. Some fixes might be relatively quick--perhaps the loan you were seeking was too large for your income, and you need to adjust your home price range. Other solutions might be longer term. If you're carrying too much debt, then it's time to create a plan to pay your debt down so you can afford a mortgage. If your credit score is too low, get free copies of your credit reports through Annualcreditreport.com, take steps to fix any errors, and start working now to improve your score by paying your bills on time, paying down debt, and getting current on past-due accounts.

3. Try Again with Bad Credit Lenders

Lenders vary. Sometimes one lender will approve a loan application another rejects. Apply with another lender, and you might score. You can get free quotes from lenders by filling in the lead form on this page.

4. Set a Long-Term Credit Repair Strategy

If you've been turned down several times, you might need to postpone purchasing a home, but that doesn't mean giving up your dream of home ownership. Use this as an opportunity to regroup and set the foundation for a successful financial future. Set a realistic budget, learn how to manage debt responsibly, and use the time to boost your savings. If you need help, get a referral to a reputable credit counselor from the National Foundation of Credit Counseling.


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