My FHA Loan Was Denied. What Are My Options?

If you’re a first-time home buyer, the prospect of an FHA loan is an attractive one. The 3.5% minimum down payment makes homeownership a viable goal for many. But what if your loan process doesn’t go as planned? You might be thinking, My FHA loan was denied. What do I do now? The good news is you still have options. This setback won’t keep you from homeownership forever.

Why Was My Application Denied?

If a lender pulls your credit for a mortgage, they are legally obligated to tell you why they denied your application. They must send you a letter within 30 days outlining the specific reasons for the rejection. There are a few reasons why they might not approve you.

Low Credit

While the Federal Housing Administration requires a credit score of at least 580, lenders are allowed to set their own guidelines, which are often higher than the government minimum. If your score falls below this number, your application may not be approved.

What should I do?

My FHA loan was denied due to low credit. In this case, you might choose to go with a different lender if your score is at 580 or above. But if your credit needs work, it could help to spend some time fixing any issues on your credit report, whether you need to correct any errors, pay off more debt, or implement other critical financial measures.

Too Much Debt or Not Enough Income

If your debt-to-income ratio is over 41%, then you need to make a few adjustments. While you can try to score a higher income or find ways to bring in more money, the easier route for many is to make progress on their debt.

What should I do?

Create a solid plan to pay off your debt. Arrange reasonable payment plans for all of your debts, budget your expenses, and begin paying off your outstanding balances. Be sure to pay on time and keep your credit usage low.

Not Enough Money For Your Down Payment

Since you can’t use cash for an FHA loan, you need to ensure that all of the money for your down payment is in a bank account. If your lender finds that you don’t have sufficient funds, they are likely not confident that you will be able to make that payment.

What should I do?

If your funds are stored across several accounts, be sure that you have given your lender all of the necessary bank statements. If you don’t have the money at all, then you’ll need to begin saving or obtain financial help.

Large Gift Amounts

Monetary gifts from friends, relatives, or charity are a good way to make the down payment for a new home. But a lender may be worried that you need to pay this money back. If you don’t have any other funds to make your down payment, then your application may be denied.

What should I do?

Be sure to prove that the money you have received is actually a gift—and not an informal loan you have to pay back.

Create a Solid Plan to Obtain an FHA Loan in the Future

My FHA loan was denied! Don’t worry—you can still take action to receive a loan approval in the future.

Looking for more specific guidance on how to move forward? Call our lenders at 855-853-1522 or send us an email.