I still remember the call from a client — let's call her Maria — at 4:47 PM on a Friday. She was supposed to close on her first home in 45 minutes. Her lender had just called to say her loan was denied. She was sobbing. Her moving truck was already packed.
That was three years ago. Maria is now happily living in that house. We saved the deal in 11 days by switching lenders. And I've since helped dozens of buyers in the exact same nightmare scenario.
If you're reading this right now because your mortgage just got denied at closing — take a deep breath. This is fixable. About 8% of mortgage applications get denied, and roughly 1 in 50 of those happen at or near closing. You're not alone, and you have more options than you think.
Here are the exact 5 steps I walk my clients through when this happens. Time is critical, so let's get into it.
Why Mortgages Get Denied at Closing (The Real Reasons)
Before we fix it, you need to understand why it happened — because the fix depends entirely on the cause. In my 10+ years doing this, here are the reasons I see over and over:
1. You made a large purchase or opened new credit
34% of denialsThis is the #1 killer. Buying furniture, a car, or even opening a store credit card triggers a credit alert. Lenders do a "soft pull" 24-72 hours before closing, and any new debt changes your DTI ratio instantly.
Quick fix: If the purchase is returnable, return it immediately. If not, you may need a larger down payment or a different loan program.
2. Employment change or job loss
22% of denialsSwitched jobs? Got laid off? Even a lateral move to a new company can trigger a denial if the lender can't verify your new income in time. They call your employer the day before closing.
Quick fix: Get a written offer letter, 30 days of pay stubs, and a verification of employment from your new employer ASAP.
3. Undisclosed debts or liens
18% of denialsThat old medical bill you forgot about? A tax lien from 2019? A co-signed loan for your cousin? If it shows up on the final credit pull and you didn't disclose it, that's a problem.
Quick fix: Pay it off, get a payoff letter, or provide documentation showing it's in dispute or doesn't belong to you.
4. Appraisal came in low or flagged issues
15% of denialsThe home appraised below the purchase price, or the appraiser flagged structural issues, unpermitted work, or safety hazards that need to be resolved before the lender will fund.
Quick fix: Negotiate with the seller, bring cash to cover the gap, or request a second appraisal (see our appraisal gap guide).
5. Unexplained large bank deposits
11% of denialsDeposited $5,000 cash from selling your old couch on Facebook Marketplace? Without a paper trail, the underwriter sees "unexplained funds" and flags it as potential fraud.
Quick fix: Provide documentation: bank statements, sale receipts, gift letters (if it was a gift), or a written explanation with supporting evidence.
Step 1: Get the Denial in Writing (Within 24 Hours)
This sounds obvious, but most people are so panicked they forget to ask for the specific reason in writing. Under the Equal Credit Opportunity Act (ECOA), your lender is legally required to provide you with an adverse action notice within 30 days. But you don't have 30 days — you need it today.
Call your loan officer (not the processor, not the assistant — the actual loan officer) and say: "I need the specific underwriting conditions that caused the denial, in writing, by end of business today."
Pro tip from experience: The denial letter will use vague language like "insufficient income" or "credit history." Push for the exact condition — was it your DTI ratio? Which debt pushed you over? What specific credit event? The more specific the reason, the faster you can fix it.
Step 2: Ask Your Seller for a Closing Extension
Here's the thing most people don't realize: sellers don't want to start over either. They've already mentally moved on. Their next purchase might depend on your closing. In my experience, about 70% of sellers will grant a 2-3 week extension if you ask.
Have your real estate agent call the seller's agent immediately — not tomorrow, not Monday — right now. Request a 14-21 day extension. Offer to increase your earnest money deposit by $1,000-$2,000 as a show of good faith. This small gesture goes a long way.
What to say: "We had an underwriting issue that's being resolved. We're committed to this purchase and willing to increase our earnest money by $2,000. We're requesting a 14-day extension to close with [same lender/new lender]."
Step 3: Fix the Problem (If It's Fixable)
Now that you know the exact reason, here's how to fix the most common issues:
Credit Score Dropped
If a new credit inquiry or balance increase dropped your score below the threshold, consider rapid rescoring. This is a service your lender can request through the credit bureaus that updates your score within 3-5 business days (vs. the normal 30-45 day cycle).
Pay down the offending balance, get a letter from the creditor confirming the new balance, and have your lender submit the rapid rescore request. I've seen scores jump 40+ points in 72 hours this way.
DTI Ratio Too High
Your debt-to-income ratio exceeded the limit (usually 43-50%). Options: pay off a small debt entirely (even a $200/month car payment disappearing can drop your DTI by 3-4%), add a co-borrower with income, or increase your down payment to reduce the loan amount.
Quick math: On a $400K purchase, increasing your down payment from 5% to 10% reduces your monthly payment by ~$300 and drops your DTI by 2-3 points.
Employment Verification Failed
Get a written verification of employment (VOE) from your HR department, plus your two most recent pay stubs and an offer letter if you recently changed jobs. For self-employed borrowers, you may need a CPA letter confirming your business is active and your income is consistent.
If you need help finding a lender who can work with your specific situation, compare lenders who specialize in complex situations — some are much more flexible than others.
Need a Backup Lender Fast?
Compare rates from lenders who specialize in rescue closings — some can close in 10-14 days.
Compare Lenders Now →Step 4: Switch Lenders (The Nuclear Option That Works)
If your current lender can't fix the issue, or if the problem is their underwriting guidelines (not your qualifications), it's time to switch. I know this sounds terrifying — starting over? — but here's what most people don't know:
- ✓Your appraisal may be transferable to the new lender (ask about "appraisal portability")
- ✓Multiple mortgage applications within 14-45 days count as ONE credit inquiry under FICO
- ✓Some lenders specialize in "rescue closings" and can close in 10-14 days
- ✓A different lender may have different guidelines — what one denies, another approves
- ✓FHA, VA, and USDA loans have different overlays at different lenders
I had a client denied by a big bank because their DTI was 46% — just 1% over the bank's internal limit. We switched to a lender that allows up to 50% DTI on FHA loans. Closed in 12 days. Same borrower, same income, same property — different answer.
The key is speed. Get pre-approved with a new lender today — every day you wait is a day closer to losing your extension.
Step 5: Protect Yourself for Next Time
Once you've saved the deal (and you will), here's how to make sure this never happens again:
The "Mortgage Freeze" Checklist
Real Story: How We Saved Maria's Deal in 11 Days
Remember Maria from the beginning? Here's exactly what happened:
- Friday 4:47 PM: Lender calls — denied. Reason: her employer's HR department didn't respond to the verbal VOE (verification of employment) in time, and the underwriter wouldn't fund without it.
- Friday 5:30 PM: I called 3 alternative lenders. One agreed to a rush file.
- Saturday 9 AM: Maria's agent negotiated a 14-day extension with the seller (plus $2,000 additional earnest money).
- Monday 10 AM: New lender ordered the appraisal transfer. Maria submitted all docs.
- Wednesday: Appraisal accepted. Underwriting began.
- Following Monday: Clear to close. All conditions met.
- Tuesday (Day 11): Maria closed on her home. She cried — happy tears this time.
Total extra cost: ~$1,200 in duplicate appraisal transfer fees and additional earnest money (refunded at closing). Worth every penny.
When You Can't Save the Deal (And What to Do Instead)
I'm going to be honest with you — sometimes the deal can't be saved. If you lost your job with no new employment lined up, or if you have a recent bankruptcy or foreclosure that wasn't disclosed, the timeline to fix these issues is months, not days.
If that's your situation, here's the silver lining: your earnest money may be protected. Most purchase contracts have a financing contingency that allows you to get your earnest money back if your loan falls through. Check your contract — if the contingency period hasn't expired, you should get a full refund.
Then, take 3-6 months to address the underlying issue. Work with a lender who can pre-qualify you and tell you exactly what you need to fix before reapplying. Many lenders offer free consultations and will create a personalized action plan.
Frequently Asked Questions
Can a mortgage be denied after closing?
Once the loan has funded and you've signed closing documents, it cannot be denied. However, denial can happen right up until the moment of funding — even on closing day. This is why lenders do final credit checks and employment verifications 24-72 hours before closing.
What are the most common reasons for denial at closing?
New credit activity (34%), employment changes (22%), undisclosed debts (18%), appraisal issues (15%), and unexplained bank deposits (11%). The vast majority are preventable.
How long after denial can I reapply?
You can reapply immediately with a different lender. There's no mandatory waiting period. Multiple mortgage applications within 14-45 days count as one credit inquiry under FICO scoring.
Can I switch lenders after being denied?
Absolutely — and it's often the best option. Some lenders specialize in rescue closings and can close in 10-14 days. Your appraisal may be transferable, saving time and money.
Will a mortgage denial hurt my credit score?
The denial itself doesn't affect your score. Only the hard inquiry does (typically 5-10 points). Multiple mortgage inquiries within 14-45 days are grouped as one under FICO.
Can I get my earnest money back if my mortgage is denied?
If your financing contingency is still active, yes — you should get a full refund. If the contingency has expired, it depends on your contract terms. Always check with your real estate attorney.
Don't Let a Denial Stop You
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