What to Do if Your Home Purchase Fell Through

If you attempted to become a homeowner but were discouraged, your next steps are very important. Maybe your loan application was denied or there were problems with the property that caused the home purchase to be canceled.

Whatever happened to discourage you from completing the journey to homeownership, stop and plan your next moves carefully. Here are some next steps to take if your home purchase fell through.

Start with Savings

Grow Your Savings

It’s very important to build up adequate savings for your next loan application. If your down payment was too small, keep growing those savings. You’ve already made some progress, so you have a massive head start on your next attempt to borrow for a home.

More Resources: 20 Household Habits to Save Money

Preserve Your Savings

Secondly, it’s crucial that you leave your existing savings intact. Avoid the temptation of going out and buying a new car with your down payment if the mortgage application is declined. That act would deplete the savings you’ll need for a successful future mortgage application, and it sends a bad message to lenders. They don’t just want to see that you can save up a down payment, they want to see you can preserve it.

The longer you keep savings intact, the more comfortable a lender will be in working with you. If you run out and buy a car with your down payment after a loan denial, you’ll send the wrong message to lenders.

Choose Savings Vehicles Carefully

If you’re borrowing for a home from your local bank or credit union, then it’s a good idea to save the down payment there, and do so carefully. Build a relationship with your financial institution so when you ask them for a home loan, they will be reassured by your past banking behavior with them. Having money in the bank with the lender you’re applying for a loan from can really help make the loan application process go more smoothly.

Get Further Education

If you tried to borrow for a home without completing any First-Time Home Buyer Education, then next time you should consider it. This homebuyer education course is comprehensive and approved by the U.S. Department of Housing and Urban Development (HUD) to provide you with valuable information about the homebuying process.

In fact, we feel like most home buyers who do take the course take it too late in the process. The sooner you go through the home buyer education course, the better—it will help you with every step of the process, from choosing a real estate agent to shopping for a loan, to every other step of the process of becoming a homeowner.

Related Article: First-Time Home Buyer Mistakes to Avoid

Yes, the course does help to qualify you for special first-time homebuyer assistance programs, like down payment and closing cost assistance, but that’s not the only reason to take the class. It contains a wealth of information that will dramatically increase your ability to navigate the homebuying process. If you only take the course to get access to mortgage assistance programs, you’re likely to take it too late to get the full benefit.

Stick to a Tight Budget

It’s really important that you learn to budget and get some practice managing your money before attempting to borrow for a home. You want to be able to demonstrate to a lender that you can live under the new financial requirements of homeownership and not run into problems. This is especially important if your new mortgage payment is going to be higher than your current rent. You must be able to demonstrate that the larger monthly payment won’t be a hardship. Budgeting is the way to make sure you’re going to be able to manage your finances after you take ownership of your new home.

Related Article: What is the Envelope Budgeting Method?

We offer free courses on budgeting, along with free downloads of educational guides and workbooks on topics like predatory lending and preserving homeownership. Spend some time learning so you can develop a new, workable budget as you prepare for your next mortgage loan application.

Improve Your Credit

Another free course we offer is Understanding Your Credit Report and Score. If your loan application was denied because there was a problem with your credit report, you’re entitled to a free copy (in addition to the free credit reports you’re entitled to annually by law). Request a copy of your report and correct any problems or mistakes you find there.

If that report doesn’t make sense to you, we’re here to help. You can download our free Consumer Guide to Good Credit—it’s chock full of information about credit reports, your consumer rights, and how to ensure your report is accurate, up to date, and reflects positively on you.

There are also credit report review services available, where a certified financial coach will go over your report with you, answering questions and providing a personalized action plan designed to help you have the best credit possible.

Be Careful About Other Borrowing

As you work toward your next home loan application, be careful about taking out any other loans. It’s not a good idea to go into a mortgage when you’ve just taken out an auto loan recently or just opened new credit cards.

The best strategy is to work to pay off other debts you have while you save for your next down payment. Try to have your car paid off before your next mortgage application, and don’t make any plans to go car shopping until your mortgage is secure, you are comfortable with your monthly payments, and your budget is working well to allow for a new car payment.

If you have other debts – like credit cards that are getting in the way of your ability to borrow for a home – talk to a debt coach about other options for eliminating your debt and setting your finances up for successful homeownership.

Credit.org’s Guide to Overcoming a Loan Denial

We offer a free 10-page Consumer Guide to Understanding and Overcoming a Loan Denial. This booklet goes into more detail about why loans are declined, and how to respond if they are. You’ll also find some deeper examination of how home loans are evaluated and what kind of debt ratios lenders will use to assess your creditworthiness.

If you were discouraged in your first attempt to buy a home, don’t give up! With the right response, you can make your next homebuying experience certain to succeed. If you don’t know where to start with all of the information available, try homebuyer coaching to help you sort through the noise and take steps in the right direction.

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