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Need a Mortgage But the Bank Said "No"... Now What?

Here's a realistic outlook on the alternatives to a traditional mortgage, and whether they suit your financial situation right now...

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First off don’t be embarrassed this happens to lots of folks out there. The good news is that there are options out there. Just because you’re bank said no, doesn’t mean that there isn’t someone out there who will say yes! But before we discuss a few of the other options, we need to understand why this happened. The first step is to ask the lender who turned you down, why they did so, I know it sounds simple but you would be amazed at the number of times that consumers never ask the lender this question.

The number one reason for declines is usually “poor credit”, most conventional mainstream lenders rely heavily on your credit in their decision making process. So it’s an excellent idea to know what’s on your credit report before the lenders do. By getting a copy of your credit report you have the opportunity to see exactly where you stand and understand what may be hurting your credit score. You may also come across information and inaccuracies that will need to be updated and corrected. By dealing with any issues prior to the lenders seeing them, will only serve to improve your chances of being approved.

Another reason for declines is that the mortgage amount isn’t simply supported by the property value. This in most cases is out of your hands, if a professionally licensed appraiser estimates the value of your property to be a certain amount, you may disagree but there isn’t a whole lot more that can be done, other than a second opinion by another appraiser. You can always request to see a copy of the report which will give you further insight into this area. If you’re looking for a refinance, in some instances with a bit of TLC, property values may increase. For example a property may be run down, but with a bit of renovating and cleaning it may have a lot more “curb” appeal.

So let’s say that you’re credit score is okay and so is the property you either want to purchase or refinance and you’re bank has said no, what else can you do?

First confirm that the lender has got all of the information correct. I know this sounds simple but applications with mistakes do happen from time to time. We are all human and sometimes mistakes are made when information is entered by loans officers. Most often these mistakes are related to income and liabilities. The lender may be using less income and have more debts listed for you than are actually there, never be afraid to ask the lender for a copy of your application to review, as doing so may just make all the difference in the world.

Second, you could try another mainstream bank or financial institution. Not all financial institutions have the same policies. Some look at certain types of properties or neighborhoods more favorably, while others are better suited to those who are self-employed. While there are others who are a bit more lenient when it comes to credit, some may be more willing to take a chance on someone who’s been bankrupt in the past.

There are some lenders who because they are located in a particular city or neighborhood tend to lend far more easily there versus national lenders who may know little about the area. The point here is that lending guidelines do vary somewhat from lender to lender; the key is to find one that is better suited to your individual situation, and the only way to find the right one is to do your homework.

Third, find out if an increased down payment or reduced loan amount may work. Sometimes folks are on the edge of qualifying and with a bit of tweaking a "no" can be turned into a "yes". In the case of an increased down payment a friend or family member might be able to assist, or in some cases you may be able to borrow it from another source (credit card, unsecured credit line, personal loan), one which the lender is okay with.

Fourth, sometimes a guarantor or co-signor helps. You may not be thrilled about the idea of asking a friend or family member to co-sing but if that’s the difference between an approval and a decline you may seriously want to consider it. Often in tight deals the additional income that the other person brings to the table is enough to push the deal over the top. One word of caution however, is that you need to make sure that your co-signor or guarantor will strengthen the deal. There is no point asking your cousin Ray to co-sign if he just started at his new job last week and was discharged from bankruptcy the month before!

The fifth option would be to approach a private lender. Unlike the banks these folks lend primarily to those with less than perfect credit. Secondly not all private lenders are created equal, if you are mortgage shopping and you have bad credit, watch out for the predatory mortgage lenders who will gouge you!

You can’t expect with less than perfect credit to get great rates but in spite of bad credit, within this lending community there are some “norms” when it comes to fees and rates. In order to find out what those are, make the calls and do your homework upfront to ensure that you end up with what is fair in the end.

Sixth, increase your sweat equity. This applies to a refinance, sometimes the lender may not like but he or she sees in an appraisal but with a bit of elbow grease often things can be turned around. Now I’m not talking about putting in new foundations and rebuilding homes, what I’m talking about is cosmetic touch-ups. It’s amazing what a fresh coat of paint or a good clean can do for a home. Cleaning up the yard and or planting some flowers can do wonders for the curb appeal. Let your friends and family know what you’re up against, you might be pleasantly surprised by how much they’re willing to do to help you.

This increased value may just be enough to push the deal over the top.

The final option, if all else fails, you may need to put your dream of purchasing a new home on hold until you’re situation has improved (better credit, more down payment, better employment, etc). Or in the case of a refinance you might be forced to sell it in order to prevent a foreclosure or walk away from it all together. Not easy choices but choices none the less.

About the Author:

Kam Brar is a licensed mortgage broker and has been directly involved in the lending industry over the past 10 years, bringing with him a wealth of knowledge and experience. His particular specialty throughout his career has been working with "challenge" customers, where it takes creative financing (and sometimes private loans) to accomplish their goals.

His role with ShangriLoan is that of a consultant and mortgage industry liaison.



ShangriLoan Ventures LTD (ShangriLoan.com) does not provide loans or mortgages, and is also not an acting broker in any capacity. ShangriLoan.com is an editorial & directory publishing service and an advertising intermediary connecting borrowers with brokers or otherwise services relevent to their specified needs. ShangriLoan.com is compensated by its advertisers for referring qualified site users who submit a request for a lending/mortgage quote from advertisers who are matched to the users needs. Please see our compensation disclosure and privacy policy for full details on our operating procedures.

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