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.
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.
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.
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.
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.
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.
If your loan was denied, it might be due to your credit report or credit score. Here’s how to dig into it.
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.
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.
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.
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.
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.
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.
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.
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:
Understanding these key factors will help you take action and improve your situation before your next mortgage application.
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.
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.
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.
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.
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:
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.
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:
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.
Before applying for a mortgage again, take a step-by-step approach to make sure you’re ready.
By focusing on these key steps, you can improve your chances and avoid another denial.
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.
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.
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.