When you apply for a mortgage, the lender will look at your monthly income, employment history, credit score, debt-to-income ratio, and other factors to determine if you qualify for a home loan. However, the unfortunate reality is that about 9% of mortgage applications are denied, and if you find yourself in this situation, it can be quite a letdown. Then come the inevitable worries and questions. Will your credit be affected? Is it possible to reapply later with a more positive result? It’s important to keep in mind that a mortgage denial is NOT a mortgage death sentence.
Will a mortgage denial affect my credit score?
The simple answer here is no, a mortgage denial will not influence your credit score. Your mortgage application status does not appear on your credit report and those looking at your credit report will have no way of knowing for sure that you were denied a mortgage. However, your credit report does show that a mortgage lender checked your credit, and this along with the absence of a new credit account can be seen as a red flag to other lenders as it means you applied for a mortgage and either didn’t move forward or were denied. So, while your credit score will not take a hit, future lenders could draw conclusions from what is listed in your credit history and view you as a higher risk borrower.
Will I be able to re-apply for a mortgage?
Yes, you will still have the option to re-apply for a mortgage at another time or with another lender. However, before re-applying, you’ll want to first find out why you were denied in the first place and fix the issue at hand. Your lender will send you a letter of denial in which they will let you know on what grounds your application was denied. The most common reasons for a mortgage denial will be:
- Low credit score
- Inconsistent job history
- High debt-to-income ratio
- Property issues
While a mortgage denial can be a major letdown, it’s not the end of the world. If you’ve been denied in the past, you can work to improve your financial situation, whether that be by improving your credit score, remaining at the same job for 2 years, paying down debt, or selecting a different property to purchase, and then re-apply again. When you’re ready to begin the home financing process again, you can get started here!
