Expert Mortgage Advice: Turned Down for Credit? You Can Get a Mortgage!

If You Have Been Turned Down for a Loan:

Learn the reason why you were turned down. Sometimes it's not a question of just being turned down for a mortgage loan. It may be that the loan you applied for is not a loan that can be approved. The mortgage lender may offer a different program or grant the loan with conditions to be met prior to closing.

Many of the reasons for a loan denial can be corrected over time. These may include that you show insufficient money for a down payment, excessive debt or a poor credit history. Once your financial situation or credit profile has improved you can apply again for a loan.

Some lenders have a second level of review for loans, and you might request a second opinion. If you've been turned down once, don't automatically be discouraged. Banks and mortgage companies set different criteria for mortgage approval based on their business objectives. Another lender may be the right match for you.

Rebuild your credit rating. If your credit doesn't qualify for those great rates you see advertised, you can rebuild your credit rating. There is a large segment of the mortgage industry lending to people who have less-than-perfect credit. The good news is that you can rebuild your credit rating using one of these special mortgage programs -- then you can qualify for the best interest rates.

These special loan programs, called "B paper," include 2/28 and 3/27 loans. The number before the slash refers to the number of years that the initial rate is fixed. These loans often have a two-year prepayment penalty, meaning you can't refinance for two years.

Most lenders want to see 24 months of on-time mortgage payments in order to approve a "best credit" loan. So, if you get that 2/28 loan with a two-year prepayment penalty, you can pay the higher interest rate, rebuild your credit, and refinance for a better interest rate at the end of two years.

Less than perfect credit mortgages are very competitive. Compare several mortgage programs offered by various lenders. You won't get the lowest possible rate, but you also don't have to pay an extraordinary number of points on top of an exorbitant interest rate.

Know your rights if you have been turned down for a loan. The lender must explain in writing why the loan was turned down, within 30 days from your submission of a completed application. You will receive an adverse action notice stating a specific reason for the denial. The notice will also tell you which federal agency to contact if you think the lender or mortgage broker has illegally discriminated against you.

If a poor credit history was the reason you were denied the loan, you are entitled to a free copy of your credit report. You also have the right to dispute the accuracy or completeness of any information in your credit report. If you dispute any information, the credit reporting agency that prepared the report must investigate free of charge and notify you with the results of the investigation.

Be careful about submitting multiple loan applications or line of credit applications. Some lenders will also look at how many inquiries have been made into your credit report recently. They might believe that a large number of inquiries means that you have applied for a large amount of credit recently. If you apply for new lines of credit, lenders might believe that you have been turned down by other lenders. Lenders also are wary if they believe that you are accumulating new credit accounts, which might indicate you have become a poor credit risk. Review another topic of our Expert Advice section, Be Smart About Your Credit History, before you apply to several lenders.

Be sure that the information in your credit report is accurate. Inaccuracies or damage done by credit or identity fraud can seriously impact your credit rating and eligibility for the best mortgage loan programs. Check your credit report on a regular basis in order to keep tabs on the information placed on it, especially if you have had credit problems in the past.

Contact the premier mortgage brokers who advertise in the LoanStar.net Mortgage Directory. You will discover experienced, knowledgeable professionals who truly believe that every borrower deserves personal attention and the highest level of customer service.