Five Things to do after the rejection of a mortgage application

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Recent statistics released from the mortgage industry show that nearly 50 percent of all mortgage applications during the last year have been rejected. While this rate is very high in comparison to previous years, it is a result of the current housing and financial markets statistics.

This does not mean, however, that you cannot re-apply for a mortgage. Federal law requires that mortgage lenders submit a formal letter of rejection stating the reasons for that rejection. It simply means you have the opportunity to review the cause of the denial, make the appropriate changes, and apply again.

There are five steps you can take when you review the rejection to determine your next steps.

1. Home Appraisal. The leading reason for a mortgage rejection letter is because the lender believes that the home you are trying to purchase costs too much in comparison to their appraisal records. This may be rectified by either placing a large deposit on the home or finding a different home that is more closely priced to the appraisal value.

2. Work History. New lending regulations require that you are at the same place of employment for at least two years at the same rate of pay or higher during that two year period. If you cannot qualify for this, you simply have to wait until you meet these guidelines. Due to the high rate of job turn-over during the recession, lenders feel this is the only way they can ensure your employer is stable.

3. Credit History. If your credit is less-than-perfect, you may need to work on downsizing your balances or removing bad entries from your report. You are entitled to a free credit report when you are denied a loan; use it to your advantage. Get a copy of each credit report and review it for errors and pay down any high-balance credit cards. As soon as you raise your score, you can reapply for a mortgage.

4. Seek Out Different Loans. If you do not qualify for the lowest rate conventional loan, look for other loan options. You may qualify for a higher risk loan that has a one percent higher interest rate.

5. Look Into Mortgage Insurance. Many times lenders will approve a mortgage if you have a mortgage insurance policy attached to the loan. Mortgage insurance guarantees that the lender will receive payment from the insurer if you default on the loan.

Do not be discouraged if you have been rejected for a mortgage; simply take the steps to correct the problem. Unlike other line of credit that report to the bureaus every time you apply, you can apply for as many mortgages as you like without it affecting your credit score.