Mortgage Denied After Pre-Approval 2026: What to Do (Fix & Reapply)

Why Mortgages Get Denied After Pre-Approval

Reason #1: Credit Score Dropped 20+ Points

What happened: Pre-approval at 680 credit. Final credit check at 655 credit = DENIED.

Common Causes:

Opened new credit card (hard inquiry + new account)
Bought car with auto loan (new debt + hard inquiry)
Missed payment on credit card (30-day late = -100 points)
Maxed out credit cards (high utilization = score drop)

Fix: Pay down debt, dispute errors, wait 30-60 days for score to recover.

Reason #2: Changed Jobs During Process

What happened: Pre-approved with Job A ($80K/year). Switched to Job B during underwriting = income can't be verified = DENIED.

Why It's a Problem:

Lenders need 2 years employment history OR 30 days pay stubs at new job. If you just started, can't verify income = denial.

Fix: Wait 30 days at new job (get 2 pay stubs), then reapply. OR stay at old job until after closing!

Reason #3: Took on New Debt (Car, Credit Card)

What happened: Pre-approved at 43% DTI. Bought $30K car ($500/month payment) = DTI now 48% = DENIED (over 45% limit).

DTI Calculation:

Before: $3,000 debts ÷ $7,000 income = 43% DTI ✅
After Car: $3,500 debts ÷ $7,000 income = 50% DTI ❌

Fix: Pay off car loan OR wait until after closing to buy car!

Reason #4: Appraisal Came In Low

What happened: Offered $300K for home. Appraisal came in at $280K. Lender will only lend on $280K = need $20K more down = can't afford = DENIED.

Example:

Purchase Price: $300K
Appraisal Value: $280K
Down Payment (5%): $15K (on $300K)
Lender Requires: 5% of $280K = $14K down
Gap: $20K ($300K - $280K) = YOU need extra $20K!

Fix: (1) Negotiate price down to $280K, (2) Bring extra $20K cash, (3) Walk away + find new home.

Reason #5: Undisclosed Debt Found

What happened: Didn't disclose $10K student loan on application. Lender found it during underwriting = trust broken = DENIED.

Common Undisclosed Debts:

Student loans in deferment (still count!)
Child support/alimony payments
Co-signed loans (you're liable!)
Business debt (if you're owner)

Fix: Disclose ALL debt upfront. Reapply with full disclosure + explanation.

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What to Do After Mortgage Denial (Step-by-Step)

Step 1: Get Denial Letter (Adverse Action Notice)

Required by law: Lender MUST send denial letter within 30 days explaining exact reason(s) for denial.

What it includes: Specific reasons (credit score, DTI, job change), credit score used, right to dispute.

Step 2: Review Credit Report (Dispute Errors)

Action: Pull credit report from all 3 bureaus (Experian, Equifax, TransUnion). Look for errors: wrong balances, accounts not yours, late payments you didn't make.

Dispute process: File dispute online (30 days to resolve). If error removed, score increases!

Step 3: Fix the Issue (30-90 Days)

Common fixes: Pay down debt (lower DTI), wait for credit score to recover, get 30 days at new job, save more down payment.

Timeline by Issue:

Credit score: 30-60 days to recover
Job change: 30 days (2 pay stubs)
New debt: Pay off immediately OR wait 6 months
Low appraisal: Negotiate price OR find new home

Step 4: Reapply (Same or Different Lender)

Options: (1) Reapply with SAME lender (they know your situation), (2) Try DIFFERENT lender (fresh start, different underwriting).

Tip: Apply to 3-5 lenders within 14 days (counts as 1 credit inquiry).

Step 5: Consider Second Chance Lenders

If still denied: Try Non-QM lenders (bank statement loans), FHA manual underwriting (human review), portfolio lenders (keep loans in-house).

Second Chance Mortgage Options (2026)

1. Non-QM Loans (Bank Statement)

Best for: Self-employed, complex income, recent credit issues.

Credit: 580-620 (lower than conventional)
Income: Bank statements (no tax returns!)
Down Payment: 10-20%
Rate: 7.5%-9% (higher than conventional)
Benefit: Flexible underwriting, easier approval

2. FHA Manual Underwriting

Best for: Borderline credit, high DTI, recent job change.

Credit: 580+ (500-579 with 10% down)
DTI: Up to 57% (vs 50% automated)
Down Payment: 3.5%
Rate: 6.5%-7.5%
Benefit: Human review = compensating factors considered

3. Portfolio Lenders (Local Banks/Credit Unions)

Best for: Unique situations, local buyers, relationship banking.

Credit: 620+ (flexible)
Income: Flexible documentation
Down Payment: 10-25%
Rate: 7%-8.5%
Benefit: Keep loans in-house = more flexibility

⏰ Don't Give Up! Get Approved!

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How to Avoid Denial (Prevention Tips)

✅ DO: Keep Everything Stable

Job: Don't change jobs during mortgage process
Credit: Don't open new accounts, don't close old accounts
Debt: Don't take on new debt (car, credit card, personal loan)
Payments: Pay all bills on time (even $20 late = denial risk)
Bank Account: Don't make large deposits (looks like undisclosed loan)

❌ DON'T: Make These Mistakes

Buy a car: Wait until AFTER closing!
Open credit cards: Even store cards = hard inquiry
Max out cards: Keep utilization under 30%
Co-sign loans: You're liable = counts as YOUR debt
Quit your job: Wait until after closing to switch

Denial FAQs (2026)

Q: How long after denial can I reapply?

A: Immediately if you fix the issue! But realistically: 30-90 days to fix credit, job, debt issues. No waiting period required by law.

Q: Does denial hurt my credit score?

A: No! Denial itself doesn't hurt credit. But the hard inquiry (when you applied) stays 2 years (-5 points temporarily).

Q: Can I sue the lender for denying me?

A: Only if denial was discriminatory (race, religion, gender, etc.). If denied for legitimate reasons (credit, income, debt), no legal recourse.

Q: Should I try a different lender?

A: YES! Different lenders = different underwriting. One lender's denial = another lender's approval. Apply to 3-5 lenders!