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5 Reasons Your Mortgage Loan Declined

Top 5 Reasons Your Mortgage Loan Was Declined

Want To Know Why You Were Declined For a Home Mortgage Loan?

Being declined for a home mortgage loan can certainly be a disappointment—especially when you consider all of the hard work that goes into applying for one in the first place. But rather than dwell on this unfortunate outcome, you can use it as a learning moment.

Understanding why you were declined for a home mortgage loan can be a valuable learning experience because it allows you to recognize and pinpoint certain areas of your financial life that need improvement. The good news is that just because you were denied once, doesn’t mean you will be denied again and again. And because lenders are required to detail the cause for denial in a formal rejection letter, you’re given all the information you need to correct your situation.

Here are 5 of some of the most common reasons why your home mortgage loan application could be denied:

Poor Credit History

Your credit history is a great way for a lender to tell whether you’re a risky investment or not. Lenders look not only at your minimum credit score, but also at whether you have a significant amount of derogatory remarks on your credit report such as a foreclosure or bankruptcy. But unless your credit is in really bad shape, you should be able to get approved for a mortgage loan. Today most lenders will consider a FICO score of less than 620 to be too low to get approved for a mortgage.

Luckily for homeowners, information on your credit is easily attainable, such as through the federally mandated website, Only once you understand why your credit score is so low can you begin to correct it. And more often than not, time is the only thing that will help.

Insufficient Income/Asset Documentation

A lender can tell if you’re able to afford a mortgage payment by looking at your income to debt ratio. While in your head you may earn enough to pay your monthly bills and a mortgage, if you can’t adequately document this income then you will likely get denied for a home mortgage loan.

Make sure to keep an accurate record of your finances and assets and document all of your income. Also, be prepared to show tax returns from the past several years.

Download our Mortgage Document Checklist to get your documents in order.


Down Payment is Too Small

A lender looks at the down payment as an investment in their future home, so a low down payment does little to put their mind at ease. Therefore bigger is always better when it comes a down payment to satisfy your home mortgage loan application.

Typically, homebuyers will have to pay down payments that equal 5–25% of the total value of a home, but there are certain federally backed home mortgage loans that don’t require a down payment whatsoever. Don’t be scared of the inevitable down payment. Start saving now.

Use our Down Payment Worksheet to get an idea of what you can comfortably spend.

4. Problems With the Property

A denial doesn’t always have to do with the homebuyer. Sometimes a property’s value isn’t enough to back the amount of the mortgage loan being applied for, and therefore is denied. It’s not uncommon for a lowball appraisal to throw a wrench into a mortgage application.

As a borrower, you have the right to ask for an appraisal rebuttal, but rarely does this result in a higher appraised value for the property in question. A good way to solve this is to shop lenders.

Download our free eBook here on how to get a mortgage after a bankruptcy


Inadequate Employment History

A consistent employment history can be a very valuable thing when applying for a home mortgage loan. In fact, many lenders require two years of consistent employment before signing off on a loan. The reason is they want to know you’re able to hold down a job long enough to pay back the money they’ve loaned you.

Be sure to have proof of your employment as well, such as pay stubs or tax information.

If you’ve been denied for a home mortgage loan, chances are it was because of one of the above five reasons. Don’t be deterred, with a little patience and extra work on your end, you can put yourself in a position to get approved the next time you apply. Once you have secured your loan, don’t stop working to improve your credit. You may be able to refinance for an even lower interest rate.


Blue Water Mortgage is licensed in New Hampshire, Maine, Massachusetts, Connecticut, Vermont, Rhode Island, Florida, North Carolina, Colorado, Texas, Georgia, and South Carolina.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.