A home refinance might be the best solution for you, but what happens when your loan application is denied by a lender? Is there any permanent record of your denial? What can you do about the reasons for the denial? Can the denial be appealed?
The first step in handling a denial is to carefully review the credit denial disposition correspondence that your lender should have emailed, faxed or regular mailed to you. On that form, the reason should be clearly checked so that you would know why an underwriter or lender decided to not proceed with your application.
If your denial is based on fixable issues such as, credit score or references, home repairs needed, or satisfaction of judgment/collection accounts, then you can establish a plan. Your loan officer may be able to speak clearer to you about the specifics of your situation, but in general, you could begin to work on any unsatisfactory credit reference by paying down or off a judgment or collections account; perhaps, you could make the repairs on your home to meet the evaluation of collateral necessary to meet approval standards.
However, the reason(s) listed on the credit denial may not be fixable. It may be that your income is unable to be verified, is verified at a lower amount than the initial application, or has many tax write-offs connected to it on your 1040's. Perhaps your association is experiencing multiple lawsuits, or your home value prevents the level of financing desired or necessary. There can be a plethora of reasons for the denial which may not be fixable issues, or at least not fixable in a short amount of time.
Understand your options. Have a dialogue with your lender, especially your loan officer or mortgage consultant. It is quite possible that you may understand something written or chosen on the credit denial form in an incorrect or incomplete manner, so give yourself the right to understand.
The second step is to decide how to best approach the issues the denial mentions. Your next course of action should only come after you completely understand the issues at hand. Once you do, you will be in a much better place to decide on the course of action to take. Perhaps you will make those repairs, perhaps your income situation will be changing soon, perhaps you see home values increasing over the next few months; there are many possible steps to take.
As far as a permanent record of the denial, it would depend on the type of loan you applied for in order to know. If you've applied for a conventional loan, then the denial would stay with the lender and with you. The only additional reporting would be to HMDA (a government agency) which would be reviewing Fair Credit Lending guidelines. If you've applied for an FHA mortgage, there is an additional website where the denial would be recorded; however, this site is only accessible to specific lenders and not open to public view.
If your loan is denied, there is usually not an appeal process. However, what can then occur is a re-application so that a new loan number can be generated separate from the recorded denied loan number. Especially, if you are working to handle some of those fixable reasons, it makes great sense to remain with your lender since they have already had the opportunity to familiarize themselves with your overall situation. To be clear, though, it is not required to stay with the same lender.
A denial of mortgage may end the loan application, but it may not be the end of any possibility to apply again.
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