What to do when your loan gets denied

A frustrating thing for anyone is being denied a loan, especially when you have worked so hard to put together an application and you think you have found the best lender. Many people put together all the necessary information for a loan and find a lender who will offer a great interest rate, only to find out that their loan is denied.

If you are one of the many people who were denied a loanin the past, you are probably experiencing a wave of emotions. You may be asking yourself some of the following questions: How will I pay for my monthly bills? How will I purchase a home? How will I purchase a car? How will I pay for school? Many people are denied a loan by one lender and decide that if they won't give them a loan then no one will. This common assumption is indeed false. There are several lenders who specialize in helping individuals who are deemed "unqualified" by other lenders. In fact, there are specific loans available for individuals with poor credit or bankruptcy.

Keep in mind that each lender is different and the decision making process varies from lender to lender. Some companies have a specific "cut-off" amount as to what types of consumers they will lend money to. Other companies base their loans on personal information such as your past financial behavior and if you were ever charged with a crime. If you are denied a loan, you shouldn't give up.

Steps to take if your loan is denied
If your loan was denied, there are a few things you can do to move forward and start looking for a new loan. The first step you need to take is to pull out your loan application and begin searching through your paperwork. Look at the different loans that the lender provides and compare their rates to other lenders. Rate the different loans in order of which ones you liked the best to the worst. Have a listing of at least 5 different lender and loan types.

After you have the list, you should contact each lender individually and discuss changes that you can make to your loan application in order to be approved. Ask questions like: "If I re-apply for the loan at a higher interest rate, will it be approved?" "Do you have a waiting period before I can re-apply for a loan?" "If I change the duration of the loan, will I be approved?" Depending upon the lender, you may notice that their policies will change on a weekly basis due to the changes in the economy. Other lenders have a specified grace period and fluctuating interest rates. You may find that if you wait an additional week, you may end up being approved for a new loan that was better than the original loan you applied for. Ask the lender if they are accepting application and if they will still consider doing business with you. Many lenders will be upfront and flat out tell you if you don't fit their standards for a loan. This will help you narrow down which lenders are willing to work with you and help you obtain the loan to fit your needs.

The second thing you need to do is ask each lender about the pre-approval process. If the lender has a pre-approval process, they will run a credit check on you before they consider doing business with you. The lender can tell you right away if you fit their standards or if you are better looking elsewhere for a loan. If you are pre-approved by the company, you will still need to go through the loan application process, but you won't be denied a loan by their company.

Don't have your credit pulled by more than 2 or 3 lenders at the same time. If you are requesting too many companies to pull your credit, it will start to drop your credit score by 5 or more points. Each time your credit is pulled, it will remain on your credit report as an inquiry for at least 2 years. Having too many credit inquires on your account will reduce your chances at obtaining a loan.

Third, if you notice that the pre-approvals are being denied, you better check your credit score. Many times you could have an error on your credit report that is causing lenders to deny you a loan. Ask the lender what their cut off credit score is for a loan. Many lenders will have a standard number set in mind when they are approving individuals for loans. The industry standard is a credit score of 620, anything below that number will be denied.

Discuss your loan options with the lender. Ask the lender if they would be willing to re-process your loan with collateral attached. Many lenders are willing to take a second look at your loan if you offer them something in return. Keep in mind that when a lender approves you for a loan, they are taking a risk. There is a secondary review level for most loans that are denied. Sometimes you can provide inaccurate information to the lender and this caused them to deny the application. The second review of your loan application will require you to provide more information such as bank statements, tax returns, employment information, and other financial documents.

Fourth, remember to ask the lender why your application was denied. Lenders are required to provide you with information in writing as to why your loan application was denied. You should receive this information within 30 days from the time you applied for the loan. Many loan officers will even go the extra step to discuss your financial situation and help point you in the right direction so you can be approved for a loan in the future.

Help! My mortgage loan was denied!
What happens if you find the house of your dreams and you are denied the loan from the bank? Shame, guilt, and humiliation have already been knocking on your door lately. You should tell yourself to keep moving forward. While this may seem like a major set back now, you will find a way to buy that house! You should devote your time to correcting the problems that caused the loan to be denied.

A common reason loan applications are denied is because the asking amount is too high. You will be asked to furnish several financial documents to the lender when you are applying for a mortgage. The lender will view your income level, the debt you are carrying, your standard of living, and the total loan amount you are asking for. If the lender determines that you are asking for a loan amount that is too high for your income, they will deny your request. This is generally referred to as the "loan-to-value" application standard. Be sure you take a good look at your income level and the amount you are applying for before your submit the application, this could save you a big headache.

Another common reason your mortgage loan is denied is because you are not providing a large enough down payment. Several lenders require at least 20 percent of the total amount of the loan to be paid at the time you are signing the application. If you do not have enough money to make a sufficient down payment, you should not expect to be approved for a loan. There are lending companies who do not require a down payment and will approve 100 percent of the loan. Again, take a good look at your finances and decide if you have enough money to make a down payment or decide if you need to search for a lender who does not require a down payment.

The industry standard for a mortgage is that the loan will not be granted if the borrower does not have sufficient income to cover the total amount of the loan. Most lenders follow a policy that states they will not grant a loan which is 28 percent higher than the borrower's monthly income. If you apply for a loan that is more than 28 percent of your income, expect to be denied on the spot!

Lastly, the number one reason your mortgage may be denied is due to your credit history. If you have a history of bad credit, it will significantly impact your chances of receiving a loan. Most lenders will not loan money to an individual with unsettled debts. If you know you have a low credit score, you need to act fast to improve it. This may mean a significant lifestyle change for you, but it will pay off in the long run. You can improve your credit score by paying your bills on time each month, paying more than the minimum amount due, and carrying less than 30% of the total credit card balance at one time. If you can, pay off the credit cards and close all but 2 accounts. Keep your older credit card accounts and lock those cards up in a drawer so you don't tempt yourself!