What if you can’t get Pre-Approved for a loan?

The excitement of buying a home can quickly end if you are denied a mortgage pre-approval. Just because you weren’t pre-approved doesn’t mean you should give up on your dream of homeownership. Here are five things you can do if you can’t get pre-approved for a mortgage loan.

1. Find out why

If you didn’t get pre-approved for a loan ask your lender why. Most lenders are helpful and will provide you with an explanation for the rejection and give you advice on how to proceed. There are many reasons why you may not have qualified, such as a low credit score, inadequate income, and inconsistent employment history. If you take the advice your lender offers and make the necessary improvements, you might qualify for financing in the future.

2. Add points to your credit score

Credit score has a big impact when applying for a loan. If you’re turned down for a mortgage due to a low credit score, take the necessary steps to improve your credit then apply again. Paying off a credit card and paying your bills on time over the next 6 to 12 months are both things you can do to help build your credit score.

3. Build your savings

When you apply for a home loan, you will be asked to provide the lender with copies of your bank statements. This is done to ensure you have enough money saved up for your down payment and closing costs. Additionally, the lender may also want to see a 2 to 3-month cash reserve after paying mortgage related expenses. If you don’t have enough money left over after paying closing costs and the down payment, the lender might recommend that you wait to buy a home until you’ve saved more money.

4. Increase your income

If you don’t have enough income to qualify for a mortgage loan, there are several things you can try. Talk to you lender and find out if you qualify for a lesser loan amount. If you are married, find out if applying for a joint mortgage makes sense. The lender uses a combined income for you and your spouse to determine affordability, which may help you qualify. If a large amount of debt is preventing you from pre-approval, paying off credit cards and other loans can increase your purchasing power and help you qualify.

5. Wait until the two-year mark

Inconsistent employment history and employment gaps can have a negative impact when applying for a mortgage loan. Typically, mortgage lenders want to see 24 months of consecutive income before pre-approving a borrower. The lender may reject your application if you are just entering the job market or if you were recently unemployed. To ensure you qualify, you may need to wait at least two years before re-applying for a mortgage loan.