Turned Down for a Mortgage Due to My Credit Score

Reader question: "I was recently turned down for a mortgage loan due to my credit score being low. The lender did not give me much more information than that. I was wondering what I should do in this situation, in order to get approved down the road."

This is a pretty common question we get from readers. Fortunately, it's also pretty easy to answer. First, you should understand that a credit score is one of several reasons you could be turned down for a mortgage loan. Yes, it's one of the most common reasons, but there are some others we need to talk about.

When someone gets turned down for a home loan, it's usually due to one of the following factors:

• The borrower's credit score is too low.
• The borrower's income is too low, relative to the amount they're trying to borrow.
• The borrowers are carrying too much debt, relative to their income.

If you have one or more of these things going against you, there's a good chance you'll be turned down by the lender.

Turned Down Because of Bad Credit

In your case, it seems that your score was too low for the lender's underwriting guidelines. So, what can you do about the situation? First off, you should ask the lender for more details. They may not give you any more information, but it never hurts to ask. I would want to know if I was turned down solely because of my credit score, or if there were other factors involved. This is the only way to know what you need to work on.

Secondly, if you were turned down for the mortgage based on your credit score alone, you should ask how far out of bounds you were. Ask the lender what their general guidelines are for mortgage approval, and ask what score they require to get the best interest rate. These are two different "brackets," so you want to know where you stand in relation to both of them. You will need a certain score to get approved for a loan, and you'll need an even higher score to get the best rates the lender has to offer.

But first things first. You want to know why you were turned down for a mortgage loan by this particular lender. If i was your credit score alone, then how far off was it, based on their guidelines? If there were other factors involved in their decision, what were they?

Lastly, you should keep in mind that every lender has different underwriting guidelines. When I refer to these underwriting criteria, I'm talking about the specific guidelines they have within their own company to determine whether a borrower is qualified or not. These guidelines determine if someone will be turned down or approved for a mortgage, but they do vary from one company to the next.

Based on these differences in underwriting procedures, it's hard for me to say exactly what score you will need to get approved for a loan. But I can give you some average numbers:

• If your score is higher than 650, then there's probably a lender out there that's willing to work with you. In that range, you may get turned down for mortgage by one lender, and then end up getting approved by different lender.
• The higher you can boost your score over that number, the better your chances are getting approved across-the-board.
• If your score is 720 or above, and you have everything else going for you in terms of mortgage approval, then you probably won't have any trouble getting approved for a loan.
• In order to get the best interest rates a lender has to offer, your score will need to be even higher -- probably 750 or above.

Now you can see what I mean when I refer to different qualifying "rackets." Just keep in mind that these numbers are averages, and not written in stone.

So let's sum up some of the key points we've discussed. You can be turned down for a mortgage loan based on several factors. This can happen when your credit score is too low, or when you don't make enough money relative to the amount you want to borrow. In other words, if the mortgage is just beyond your financial reach, you're going to get turned down for the loan. Some people get rejected by lenders because they are carrying too much debt, relative to their income level. This is referred to as a debt-to-income ratio, and it's one of the key qualifying factors used by lenders today.

Lastly, let me remind you to follow up with the lender and ask why you were turned down for this particular loan. Try to get as much information as you can from them. It's in their interest to provide these details, because it helps you make improvements wherever needed. Then, later on, you might end up applying for a loan through that same lender. So they will get you business in the long run.

I hope this helps you out some, and I wish you luck with your future endeavors.