What to Do if Your Home Purchase Fell Through

A guide on steps to take if your home purchase falls through, ensuring you are informed and prepared for next actions.

What to Do if Your Home Purchase Fell Through

Buying a home can be exciting, but sometimes things don’t work out. Maybe you got your loan denied, or something went wrong with the property. It can feel like your homeownership dreams are slipping away. But don’t lose hope. Many people are denied a mortgage on their first try. With the right steps, you can bounce back stronger than before.

This guide will help you figure out what to do next if your mortgage application is denied. You’ll learn how to save smarter, manage credit, and prepare for your next mortgage loan application.

Loan Denied? Start with Your Savings

Grow Your Down Payment

One common reason people get their loan application denied is because their down payment is too small. Lenders want to see that you can cover at least a portion of the cost of the home. A bigger down payment lowers the loan amount you need and boosts your approval odds.

If you already saved up some money, that’s a great start. Keep growing that savings account. If you’re banking with a credit union or local bank, saving with them might even help your mortgage eligibility later.

Preserve Your Savings

After a mortgage denial, don’t go out and spend your savings. Avoid making large purchases like a car. Using your down payment money on something else can make lenders nervous. They want to see that you’re serious about owning a home and can keep your finances stable.

Holding onto your savings shows you’re ready for the financial responsibility of monthly payments, closing costs, and homeownership in general.

Choose the Right Savings Account

If you’re planning to work with one lender, like your bank or credit union, keep your savings with them. It shows loyalty and helps build trust. Your banking history can help lenders feel more confident about your loan application. It also makes the application process smoother.

Get Educated: Learn About the Homebuying Process

Taking a homebuyer education course can make a big difference. These courses are often approved by HUD (the U.S. Department of Housing and Urban Development). They teach you the full home buying process, from finding a real estate agent to applying for a conventional mortgage.

You’ll also learn how to find first-time homebuyer help like down payment assistance and programs that cover closing costs.

The earlier you take this course, the better. It helps you avoid mistakes that can lead to mortgage application denials. Some people take the course too late—after they’ve already applied and failed. Get ahead of the game.

Learn to Budget Like a Homeowner

When lenders look at your monthly income, they want to know you can handle a mortgage payment. If your rent is low and your future monthly payments will be much higher, they’ll want proof you can manage it.

Start practicing now by setting up a strict budget that reflects the kind of payment you’ll have once you own a home. This helps build confidence—for you and for the lender.

There are free resources like the Envelope Budgeting Method that can help. You can also find downloadable guides and workbooks from our site, and we offer free courses on budgeting and other topics.

Understand Your Credit Report and Credit Score

If your loan was denied, it might be due to your credit report or credit score. Here’s how to dig into it.

Check Your Credit Report

You’re entitled to a free credit report from each of the three credit bureaus (Equifax, TransUnion, and Experian) once a year. Visit AnnualCreditReport.com to request yours.

Look closely for errors. Even a small mistake—like a payment marked late that wasn’t—can hurt your score.

You can also download the Consumer Guide to Good Credit from our site. It explains how credit reporting agencies collect data and how you can correct problems.

A person extending  their hands forward, symbolizing uncertainty and contemplation regarding a failed home purchase.

Improve Your Credit Score

Improving your credit score is one of the best ways to recover from a mortgage denial. Pay your bills on time, pay down current debt, and avoid opening new credit accounts.

Avoid maxing out credit cards or taking out a personal loan while you prepare for a new mortgage application. Each of these can hurt your credit profile and lower your score.

Need help? A certified financial coach can review your credit report, explain what’s hurting your score, and help you create a plan for improvement.

Manage Debt and Keep a Healthy Debt to Income Ratio

Lenders look at your debt to income ratio—the percentage of your monthly income that goes toward monthly debt payments like car payments, credit cards, and other loans.

If your debt to income ratio is too high, it’s one of the most common denial reasons for a mortgage loan.

Cut Down Other Loans

Work on paying off smaller debts first. This can help free up money and improve your approval odds. If possible, pay off your car loan before your next mortgage application.

Avoid taking out any new debt, even if you think you can afford it. Lenders may assume you’re financially stretched.

Be Careful with Credit Checks

Each time you apply for credit, it triggers a credit check, also known as a hard inquiry. Too many inquiries in a short time can lower your credit score.

Instead of applying for multiple loans or credit cards, focus on managing what you already have. Some people think trying online lenders or applying with different banks at once will increase their chances—but this can backfire.

Stick with one lender at a time, and space out applications to protect your score.

Don’t Give Up: Your Homeownership Dreams Aren’t Over

If you got your mortgage application denied, that doesn’t mean you’ll never become a homeowner. Use this time to get better prepared.

You can download Credit.org's free Guide to Understanding and Overcoming a Loan Denial. It explains why underwriters deny loans, how to respond, and what steps will help the most.

Remember, this is just one setback. With the right financial information, education, and planning, your next attempt at buying a home can succeed.

More Ways to Recover After an Application is Denied

If your first try at buying a home didn’t work out, don’t let it stop you. There are more ways to prepare, improve your finances, and try again. This section dives deeper into how to fix the problems that led to your mortgage denial and how to increase your mortgage eligibility for the future.

Understand the Key Reasons People are Denied a Mortgage

Mortgage lenders look at several pieces of financial information before approving a home loan. If your application is denied, it may have been due to:

  • A low credit score
  • Limited or inconsistent employment history
  • High debt to income ratio
  • Recent large deposits that raised red flags
  • Too little saved for the down payment or closing costs
  • Credit history that includes late or missed payments
  • Applying as a permanent resident without proper documentation

Understanding these key factors will help you take action and improve your situation before your next mortgage application.

Employment History and Stable Income

Mortgage lenders want to see stable employment and reliable monthly income. If you’ve changed jobs frequently or have gaps in your work history, lenders may hesitate to approve your loan.

Try to stay at the same job for at least two years before applying again. This helps demonstrate financial stability. If you’re self-employed, make sure you have solid records of income, tax filings, and bank statements to show you can afford monthly payments.

Watch for Large Deposits

Large deposits into your savings account can cause concern for lenders. They might question where the money came from and whether it’s a loan that isn’t listed in your financial information. If you received money as a gift, make sure you get a gift letter confirming that it doesn’t need to be repaid.

Transparency is key when preparing for a mortgage. Keep records of your financial activity and be ready to explain any unusual items during the application process.

Use a Co-Signer (If Necessary)

If your credit profile or income doesn’t meet lender requirements, you might consider asking a co-signer to help. A co-signer with good credit and low debt can improve your approval odds, but it’s a serious commitment. They’ll be legally responsible for the loan if you can’t make the payments.

Before using a co-signer, have an honest conversation and make sure they understand the risks involved.

Consider Credit Unions and Online Lenders

If one lender turns you down, don’t assume all lenders will do the same. Different lenders have different rules. Some online lenders and credit unions are more flexible with credit issues or debt to income limits.

Still, don’t rush into applying with many lenders at once. Too many hard inquiries can lower your credit score. Take your time, compare offers, and apply only when you’re more confident in your financial readiness.

Address Bad Credit and Other Credit Issues

Bad credit doesn’t mean you’ll never own a home. It just means you have some work to do. Follow these steps to fix credit issues and raise your score:

  • Check your credit report for mistakes
  • Pay bills on time every month
  • Avoid opening new credit accounts while preparing to buy
  • Keep credit card balances low
  • Pay down current debt

If you’re unsure where to start, work with a certified credit counselor. They can help you create a plan to manage credit, increase your score, and build a stronger credit history.

Reduce Monthly Debt

Your monthly debt payments—such as credit cards, car payments, student loans, or personal loans—affect your debt to income ratio. Lowering this ratio is one of the most effective ways to improve your mortgage eligibility.

To reduce your monthly debt:

  • Avoid new loans or large purchases
  • Pay off high-interest debts first
  • Make extra payments when possible
  • Consolidate or refinance debt if it lowers your monthly payments

Talk to a debt coach if you need help managing your debt or creating a plan. The goal is to make your monthly debt manageable and improve your financial outlook for lenders.

Prepare for the Next Application Process

Before applying for a mortgage again, take a step-by-step approach to make sure you’re ready.

  1. Review your credit report and score from all three credit bureaus
  2. Build or maintain your savings account for a strong down payment
  3. Stick to a realistic monthly budget
  4. Avoid new credit checks or loans
  5. Keep track of your employment and income documentation

By focusing on these key steps, you can improve your chances and avoid another denial.

Download Resources and Guides

Credit.org offers several free tools to help you move forward:

These materials can help you gain insights into why underwriters deny loans and how to respond to mortgage application denials effectively.

Don’t Give Up On Homeownership

Being denied a mortgage doesn’t mean you’re not ready—it means you need to make some changes. Whether you need to fix your credit, save more for a down payment, or reduce your debt to income ratio, the good news is that all of these steps are possible.

By taking action now, you can become a stronger borrower and make your next home loan application a success. Remember, the path to homeownership isn’t always straight, but every step you take gets you closer.

Final Thoughts

If your home purchase fell through, take time to regroup. Learn from the experience, get help where you need it, and take smart steps toward success. With the right plan, you can turn a mortgage denial into a future approval—and finally unlock the door to your new home.

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.

Jeff Michael
Article written by
Jeff Michael is the author of More Than Money, a debtor education guide for pre-bankruptcy debtor education, and Repair Your Credit and Knock Out Your Debt from McGraw-Hill books. He was a contributor to Tips from The Top: Targeted Advice from America’s Top Money Minds. He lives in Overland Park, Kansas.
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