Mortgage Denied? Here's Exactly What to Do Next

Getting a mortgage denial is gut-wrenching — especially when you've already found your dream home, signed a purchase agreement, and started imagining your life there. But a denial isn't the end of the road. It's a detour with a clear map back to approval.

About 10% to 15% of mortgage applications are denied each year. Many of those borrowers go on to successfully get approved, often within months. Here's your step-by-step plan.

Step 1: Understand Why You Were Denied

By law (the Equal Credit Opportunity Act), your lender must provide a written denial notice — called an adverse action notice — within 30 days. This notice must include the specific reasons for denial.

Most Common Denial Reasons

Credit-related issues:

• Credit score below the program minimum
• Too many recent late payments
• High credit utilization (balances too close to limits)
• Recent bankruptcy, foreclosure, or short sale
• Collections or charge-offs on the report
• Insufficient credit history

Income and employment issues:

• Insufficient income relative to the loan amount
• Unstable employment history (job gaps, frequent changes)
• Self-employment income that's declining year over year
• Unverifiable income sources
• Too much existing debt (high debt-to-income ratio)

Property issues:

• Appraisal came in below the purchase price
• Property condition doesn't meet loan program requirements
• Title issues discovered during the search
• Property type not eligible for the loan program

Asset and down payment issues:

• Insufficient funds for down payment and closing costs
• Large, unexplained deposits in bank statements
• Down payment source not acceptable (undocumented gifts, loans disguised as gifts)
• Insufficient cash reserves after closing

Step 2: Get the Details

The adverse action notice gives you general reasons, but you need specifics. Call your loan officer and ask:

1. Which specific factor was the primary reason? — Was it your score, your DTI ratio, or something else?
2. How far off were you? — Were you denied by 5 points or 50? Was your DTI 46% when the max was 45%?
3. Is there anything you can do to overturn the decision? — Sometimes providing additional documentation resolves the issue
4. Would a different loan program work? — You might be denied for conventional but qualify for FHA
5. Can you appeal? — Some lenders have formal appeal processes

Understanding the gap between where you are and where you need to be is essential for your action plan.

Step 3: Review Your Credit Report

If credit was a factor, pull your full reports from all three bureaus at AnnualCreditReport.com. Look for:

• Errors — wrong accounts, incorrect balances, payments reported late that were actually on time. About 25% of credit reports contain material errors.
• Accounts you don't recognize — possible identity theft or mixed files
• Outdated negative items — some items should fall off after seven years (10 for bankruptcy)
• Duplicate accounts — the same debt reported multiple times

If you find errors, dispute them with the credit bureau immediately. Corrected errors can boost your score within 30 to 45 days.

For strategies to improve your score, see our guide on [[mortgage [credit score tiers](/blog/credit-score-ranges-explained)](/blog/mortgage-credit-score-tiers)](/blog/mortgage-credit-score-tiers).

Step 4: Evaluate Your Options

Option A: Fix the Issue and Reapply With the Same Lender

If the gap is small — say, a credit score 10 points below the minimum or a DTI ratio 1% over the limit — you may be able to resolve it quickly and reapply.

Timeline: Weeks to a few months depending on the issue.

Option B: Apply With a Different Lender

Different lenders have different overlays (additional requirements beyond the minimum guidelines). You might be denied by one lender but approved by another for the exact same loan program.

A mortgage broker can be especially helpful here, as they have access to dozens of lenders and know which ones are most flexible. See our mortgage broker vs. direct lender guide for more on this approach.

Option C: Try a Different Loan Program

If you were denied for a conventional loan, you might qualify for:

• FHA loan — more lenient credit requirements (580 minimum with 3.5% down)
• VA loan — if you're a veteran, no minimum credit score from the VA
• USDA loan — for rural properties, flexible credit requirements
• Non-QM loan — alternative programs for self-employed, bank statement, or asset-based qualifying

Our [[[mortgage types compared](/blog/mortgage-types-compared-2026)](/blog/mortgage-types-compared-2026) guide](/blog/mortgage-types-compared-2026) breaks down every major loan program.

Option D: Wait and Rebuild

If the issue is significant — recent bankruptcy, foreclosure, or deeply damaged credit — the best strategy may be patience combined with active credit rebuilding.

Typical waiting periods after major events:

• Chapter 7 bankruptcy: 2 years (FHA), 4 years (conventional)
• Chapter 13 bankruptcy: 1 year into repayment (FHA), 2 years after discharge (conventional)
• Foreclosure: 3 years (FHA), 7 years (conventional)
• Short sale: 3 years (FHA), 4 years (conventional, with 10% down)

Step 5: Create Your Action Plan

Based on the denial reason, here's what to do:

If Denied for Credit Score

1. Pull your credit reports and dispute any errors
2. Pay down credit card balances to below 30% utilization (below 10% is better)
3. Make every payment on time — set up autopay
4. Don't apply for new credit
5. Consider becoming an authorized user on a family member's well-managed card
6. Check your score monthly to track progress
7. Reapply once you've reached the target score

Expected timeline: 2 to 6 months for moderate improvements; 6 to 12 months for significant jumps.

If Denied for High DTI (Debt-to-Income Ratio)

Your DTI ratio compares your monthly debt payments to your gross monthly income. Most conventional loans cap at 45% to 50%; FHA allows up to 57% in some cases.

To lower your DTI:

1. Pay off small debts entirely — eliminating a car payment or student loan can dramatically shift your ratio
2. Increase your income — a raise, side income, or co-borrower can help
3. Look at a less expensive property — a lower loan amount means a lower DTI
4. Pay down credit cards to eliminate minimum payments
5. Consider alternative loan programs with higher DTI allowances

If Denied for Employment Issues

1. Stay at your current job — stability matters
2. If you recently started a new job, wait until you have 30 days of pay stubs and can demonstrate stability
3. If self-employed, consider a [[bank statement loan](/blog/bank-statement-mortgage-guide)](/blog/bank-statement-mortgage-guide) or waiting until you have two years of tax returns showing stable or increasing income
4. For freelancers, see our [[mortgage for freelancers](/blog/mortgage-for-freelancers) guide](/blog/mortgage-for-freelancers)

If Denied for Appraisal Issues

The problem isn't you — it's the property:

1. Negotiate a lower purchase price with the seller based on the appraisal
2. Bring more cash to cover the gap between the appraised value and purchase price
3. Request a reconsideration of value from the lender, providing comparable sales the appraiser may have missed
4. Order a second appraisal (some loan programs allow this)
5. Walk away — if the property isn't worth the price, your denial may be protecting you

If Denied for Insufficient Assets

1. Save more before reapplying — use our down payment sources guide for creative strategies
2. Look into [[down payment assistance](/blog/down-payment-assistance-programs) programs](/blog/down-payment-assistance-programs)
3. Ask family for a documented gift
4. Consider a loan program with lower down payment requirements
5. Explore employer-assisted housing programs

Your Rights After a Mortgage Denial

Federal law protects you:

• You must receive a written adverse action notice explaining the denial
• You're entitled to a free credit report from any bureau that provided information used in the decision
• You cannot be discriminated against based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance (Fair Housing Act and ECOA)
• You can file a complaint with the Consumer Financial Protection Bureau (CFPB) if you believe you were treated unfairly
• A denial does not prevent you from applying elsewhere — there's no rule against immediate reapplication with a different lender

How a Denial Affects Your Credit

The mortgage denial itself doesn't appear on your credit report. However:

• The hard inquiry from the application stays for two years (impacts score for about one year)
• If you apply with multiple lenders within a 14- to 45-day window, all inquiries count as one for scoring purposes — so shopping around after a denial is relatively low-impact
• Multiple mortgage inquiries spread over many months will have a larger cumulative effect

Preventing Future Denials

Before your next application:

1. Get pre-approved (not just pre-qualified) — a thorough pre-approval catches most issues before you're under contract
2. Don't change your financial picture during the application — no new debt, no job changes, no large purchases
3. Disclose everything — surprises during underwriting are the enemy of approval
4. Work with a knowledgeable loan officer who reviews your full profile before submitting
5. Have your documents ready — use our [[mortgage application checklist](/blog/mortgage-application-checklist-2026)](/blog/mortgage-application-checklist-2026)

When to Seek Professional Help

Consider working with a HUD-approved housing counselor (free services available) if:

• You've been denied multiple times
• You're not sure how to interpret your denial notice
• You need help creating a credit improvement plan
• You're facing discrimination concerns
• You want unbiased guidance not connected to a lender

Find a counselor at HUD.gov or by calling 800-569-4287.

Final Thoughts

A mortgage denial is a setback, not a stop sign. The vast majority of borrowers who are denied can get approved — it's a matter of addressing the specific issue, choosing the right loan program, and sometimes simply finding the right lender.

Use the denial as a learning opportunity. The adverse action notice is essentially a roadmap telling you exactly what to fix. Follow that map, and you'll find yourself at the closing table sooner than you think.

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