 It's
not fun if your loan is not approved. But sometimes, it is not even a
question of getting turned down. It just so happened that you got
finally approved for a loan that you did not initially apply for.
Wondering how something like this could happen?
Well, to suit the specific situation of their
applicants, some lenders may offer a different program. Your lender may
have done something similar or gave you a counter offer that in their
opinion suits you better. Or, alternatively, the lender may have
approved you for the loan but with particular conditions that must be
complied with before closing the complete deal.
In any case, the end result is the same - you did not exactly get what you intended to get in the first place.
Although, before you hit the pathos of denied
credit, know that there are steps you can take if your loan is denied.
Here you will learn what these steps are and how to go about each one
of them so approval won't be too far away the next time you apply for a
loan.
Step 1: Find out why you were denied.
The first step to any problem is to identify the
root cause. Why were you denied in the first place? What were the
things that were factored in which finally led to your denial of
credit?
You need to find out the answers to all these
questions first. The good news is it won't be too difficult a task
since lenders are necessary by federal law to tell you why you were
denied credit.
The law, known as the Equal Credit Opportunity
Act, mandates that all lenders and credit providers should tell you the
reason for the denial. This should be done in writing and given within
30 days after such denial.
The law also requires two significant pieces of information that must be included in this letter. These are:
- The reasons why
you were denied credit. Note that these reasons must be specific, not
vague. Or, the letter may contain information on how you can obtain
those reasons; and
- If a
credit report was used in making the decision of turning down your
application for a loan, the lenders are obliged to give the name and
address of the credit reporting agency that supplied the report.
Sometimes, you may not understand the reasons
given for turning down your application. If so, ask for more
information using the contact numbers provided in the letter. It may be
hard to decide exactly why you were denied since there are many factors
involved. Don't hesitate to ask questions. It is your right to ask
them. And the information you receive will help you improve your credit
so you can qualify in the future.
Additionally to the reasons and the name of the
credit reporting agency, the letter or notice will also tell you which
federal agency to contact if you believe the lender or the mortgage
broker has illegally discriminated against you.
Step 2: If the reasons for the denial are based on correctable errors, then correct them.
There can be various reasons why your application
for a mortgage or a loan got denied. It could be because you did not
meet the creditor's minimum income requirement. Sometimes, you got
denied credit because you are not at your job or address for the
necessary amount of time.
One of the most frequent reasons why consumers
get denied when applying for loan applications is insufficient income.
You may not be bringing in enough money to afford the house you want or
you may not have enough funds for closing costs and a down payment.
If this is the case, correct the problem by
applying for loan programs that specially for low to moderate income
borrowers. This way, you can take advantage of the lower down payment
necessities that programs such as these frequently offer.
Two fine examples of such loans designed for low to moderate income borrowers are the FHA loans or VA loans.
Another reason why you might be denied credit is
if you requested a loan amount that is larger than 95 percent of the
appraised value of your property. If this is the situation, then
probable that loan would be denied.
There are three things you can do when faced with such circumstances:
- You can try to
renegotiate with the seller for the purchase price. If you manage to
lower the purchase price down, then you can also lower down the loan
amount required to get the property; or
- You
can make an additional down payment independent of the down payment
earlier made. The extra will cover the difference between the appraised
value of the property and the purchase price.
- The
appraiser could have undervalued the property or made a error during
the appraisal procedure. Suggest to your lender that he reexamine the
appraisal to make sure there are no errors.
Step 3: If the denial is due to poor credit report, get a free copy
of your report from any of three major credit reporting agencies.
Sometimes, the reason for the denial has
something to do with a poor credit history - things you did in the past
than things you're doing now. Your credit score may be low, leaving the
lender no option but to deny your application for a loan.
A low credit score means you are "high risk" and
lenders are bound to think twice before approving you for a loan, since
the status of your score suggests that you might not be the sort who
makes payments on time, has very little credit available, too many
debts, etc.
If the letter sent by the lender indicates poor
credit report as the reason, then be mindful that you are in fact
entitled to get a free copy of your credit report from any of the three
credit reporting agencies - Experian, Equifax, and TransUnion. Also,
note that this guarantee is only for 60 days so don't wait until after
two months before you order your free credit report.
Once you get your credit report, read it cautiously, and ensure that it is correct and complete.
If you find any errors, such as a fraudulent
collections or a cancelled account, fix them. Errors in credit reports
are defined as any charge:
- For something you did not buy or for a purchase made by someone other than you or not authorized to use your account;
- For
something that is not appropriately identified on your bill or is for
an amount different from the actual purchase price. It may also be a
charge entered on a date different from the purchase date;
- For something that you did not accept on delivery or that was not delivered according to agreement.
Additionally, billing errors in your credit
report may be errors in arithmetic. Sometimes, you may have made a
payment or have a credit that doesn't show up in your account. Or the
creditor may have failed to mail a bill to your current address,
resulting in your being late for a payment. This can be considered an
error if you told the creditor about an address change at least 20 days
before the end of the billing period.
The first step is to report any these errors to
the credit reporting agency as soon as possible. Send a separate letter
to each agency where the error is found. The letter should contain your
detailed explanation of the circumstances, including a copy of your
credit report with the faulty information highlighted.
The duty of the credit reporting agency is to
investigate any reported errors. Under the Fair Credit Billing Act,
creditors are necessary to correct errors promptly and without charge
or damage to your credit rating.
The credit reporting agencies will be contacting
the creditor who placed the line item and remove it (the item) if found
to be erroneous.
If the agency's findings don't sit with you well,
you can file a short statement in your record giving your side of the
story. That way any creditor who may access your credit report in the
future will find such statement or a summary of it.
Step 4: Get a second opinion.
Some lenders have divisions whose sole purpose is to reevaluate your loan applications. The
investigating credit reporting agency will send the corrected copy to
your lender after investigating errors in your credit report and
correcting them.
Contact your lender and follow up the report with
a few questions of your own. You may even request a second opinion from
the lender's second level of review for loans.
Step 5: Apply for a new loan.
And lastly, keep shopping. Just because you got
turned down once does not mean that you are never going to get approved
for a loan again, ever. Don't get discouraged by one denial of credit.
Lenders have different approval standards. Banks
and mortgages use different criteria for application approval based on
their business objectives. So there is a big chance that another lender
will find the right program match for you.
Here is a quick rundown of some tips to help you get approved for that loan:
- Know what you're
looking for in a loan, including how long it will take to process your
application, minimum down payment required, the annual percentage rate
of the loan interest, and the points or origination fees on the loan.
- Know
what the qualifying guidelines are for the specific loan. These can
relate to such factors as your income, employment, assets and
liabilities, and credit history. Note that the guidelines may differ
from lender to lender so all the more reason for you to find them out
before applying for any loans.
- Find
out if you can get a refund of the loan application fee if you change
your mind. Some lenders may refund the fee if they turn you down.
- And
finally, provide the lender with complete, correct information. This is
also the best way to let everything about your application process go
smoothly.
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