A First-Time Homebuyer's Guide, Start To Finish - The Strategic First-Time Homebuyer Book - Chapter 6 You've Been Denied (Your Credit)
April 28, 2026
r/NewbHomebuyer
......This is chapter 6, just scroll down a little beyond the intro and you'll pick up where you left off......
Hey guys, I spent a lot of time writing this book, and I had this subreddit in mind as I was writing it, so I thought I would post it here for you for free. If you want the physical book you can always go on Amazon, but here's my gift to you 😄
I'll include links so you can jump between chapters easily.
I hope you find it helpful.
The Strategic First-Time Homebuyer
Start to finish, with strategies to get approved and save thousands in interest, costs, and the down payment.
Contents
Chapter 1 How Much Can I Afford? 3
Chapter 2 How Much Cash Do I Need? 16
Chapter 3 How To Find The Down Payment 30
Chapter 4 Your Debt To Income Ratio 41
Chapter 5 Choose Your Lender 69
Chapter 6 You’ve Been Denied (Your Credit) 80
Chapter 7 Selecting a Real Estate Agent 90
Chapter 8 Shopping For a House108
Chapter 9 Under Contract: Inspections and Appraisals 121
Chapter 10 Under Contract: Rate Lock and Underwriting 129
Chapter 11 How To Lower Your Rate 144
Chapter 6
Before we move on to shopping for a house with your real estate agent, we need to cover the final reason why a lender might disqualify you for a mortgage.
We covered your down payment and closing costs, and what you can do to overcome any shortages there. We’ve covered your debt-to-income ratio, and tips on how to improve it. But we haven’t covered credit.
Here are the minimum scores needed for each loan:
● Conventional: Fannie Mae doesn’t have a minimum score requirement, but a lot of lenders currently put the minimum score at 620 for conventional loans.
○ Just because there isn’t a minimum, doesn’t mean any score goes. A credit score is low because of negative aspects to your credit report. Those negative aspects are what will get you disqualified.
● FHA: The minimum score is 500 with at least 10% down payment, and 580 with the minimum 3.5% down payment.
● USDA: There aren’t minimum credit scores for USDA, but it weighs the negative aspects and puts it into a risk category. If it deems the profile too risky, it will get disqualified. Each individual lender will also have its own minimum credit score.
● VA: The VA does not have a minimum score, but individual lenders will.
If you’re having a hard time getting your score above the lender’s minimum, here are a couple of ideas for you:
● Double check your application for mistakes or missing information
● Ask if the lender has manual underwriting
● Consider working with a mortgage broker
● Improve your credit score
I’ll save improving your credit score for the last item, because I think it’s worth checking if you can get approved right now.
Double Check Your Application
“Is the computer plugged in?”
If the loan officer has incorrect or missing information, he could run his automated underwriting system (I’ll explain this next) and it could come back denied.
Sometimes the loan officer won’t know what to say, and could come back with “your score is too low” or “you need a larger down payment.”
A proactive loan officer will call back and say “I’m getting a disqualification on our automated system, let me make sure I have everything correct.”
Double check everything, but triple check your assets and liabilities.
The credit report could have old information, or incorrect information. If there’s a debt you do not recognize, that debt could be affecting your mortgage application. If there’s a loan that you’ve refinanced recently, it could be double-reporting (the old loan doesn’t show up as paid off, and the new loan has already been reported as opened.)
As far as assets go, give the loan officer everything. I don’t care if you won’t be using your retirement account as part of the down payment. I don’t care if you refuse to sell your stocks. The loan officer doesn’t have a full picture if he doesn’t have all of your assets.
If the automated underwriting system knows that you have several months worth of savings in case of emergency, then it will improve your application.
Ask your loan officer for your 1003 form (pronounced “ten-oh-three”).
A 1003 is your mortgage application on a standardized form. Review that application for accuracy and completeness.
Manual Underwriting
Most lenders use automated underwriting. It makes their job really easy. A computer checks the buyer’s credit profile, assets for a down payment, assets available for reserves, and the debt-to-income ratio.
Think of it like one of those two-sided scales.
On one side, you have all of the negative aspects or detractors. On the other side, you have all of the positive aspects to your application.
Here are examples of positives:
● High credit score
● Low debt-to-income ratio
● Large down payment
● Assets for reserves
Here are some examples of detractors:
● Low credit score
● High debt-to-income ratio
● Minimum down payment
● No assets for reserves
If a low credit score is a detractor for you, you may be able to switch the automated underwriting denial to an approval if you can add several positives to the scale.
Example:
If your low credit score is an issue, you may still get a pass if you have:
● Good income compared to your debts
● Savings to cover your down payment, closing costs, and several months of expenses (like an emergency fund)
○ A portion of your retirement account may be considered as reserves
If you’re still getting denied by the automated underwriting system (the two-sided scale) there may be hope with a manual underwrite.
A manual underwrite means that you’re still eligible for a mortgage, but it requires a person to go through, with pen and paper, and check items off on their checklist.
Here are things they’re looking for:
● A better debt-to-income ratio
● Reserves (emergency fund covering a certain number of months)
● Minimum credit score
● Clean housing repayment history (no lates on rent or mortgage payments)
● Clean repayment history on installment debts (car loans for example, you can’t have had too many late payments on those types of loans in the past 2 years)
● Other compensating factors, like:
○ Minimal housing payment increase (rent is similar to the new mortgage)
○ Strong residual income (money left over after debts are paid)
○ Additional income not considered (could be like a second job that they cannot count for underwriting rules)
If you’re getting a denial from automated underwriting, ask if they can review it for a manual underwrite. If they can’t, consider working with a mortgage broker.
Mortgage Brokers
A mortgage broker is built for this case. If you’re having a hard time getting approved because of credit or a lender’s extra rules or minimum score requirements, you’ll have a better chance with a broker.
A broker represents multiple lenders, not just one lender.
One lender might have a 620 minimum score, while another has a 550 minimum score, and if the mortgage broker represents both, then she can take your application to the best-fitting lender.
I’ve been a mortgage broker for over five years, and have met with several great ones. If you need help connecting with a good mortgage broker, fill out this form and I’ll connect you with a good one: newbhomebuyer.com/broker
Improve Your Credit Score
If you’ve checked with a mortgage broker and manual underwriting, and still cannot get approved, then the fastest way to getting approved is the long way.
Improving your credit score will have a big impact on getting approved. It gives you better chances of qualifying for down payment assistance, and the algorithm is more forgiving on other negative aspects of your application if your score is higher.
Here’s what makes up your credit score and the impact. A higher percentage means it has a higher impact on your score:
● Payment history: 35%
○ Late payments have the biggest impact
● Utilization: 30%
○ If you have a credit card with a $500 limit, and max it out at $500, then your utilization is high, and that negatively impacts your credit score.
● Length of history: 15%
○ If you have an account that has been opened for a long time, that account will help your score more than a brand new account.
● New credit: 10%
● Credit mix: 10%
○ Credit mix considers if you have a variety of repayment history, or if it’s just credit cards.
If you had to build your credit in a specific order, using your money where it's most effective first, this is how I'd do it.
● Review and correct any mistakes.
○ If there’s an account that shouldn’t be there, and is negatively impacting your score, then ask the credit bureaus to remove it.
○ Pull your report at annualcreditreport.com
● Catch up on late payments (payment history is the highest weighted factor)
● Ask for pay-for-delete on collections.
○ If you have a collection, then ask them to delete it. “If I pay this, will you delete it as if it never existed and provide me with a letter of deletion?”
○ This will get rid of the collection account as if it never existed. Remember, ask if they'll delete the account if you pay it off. Not just mark it as 'paid.'
● Pay down credit cards below 30% of the limit
○ This helps the utilization aspect of your credit report
○ If you can’t pay it down, consider a consolidation loan. A consolidation loan pays off your high credit card debt and places it in an installment loan instead. This lowers your utilization and will likely have a positive impact on your credit score. If you do this, review the terms carefully. “Thar be loan sharks in the water.”
■ One thing you should consider is your own discipline. If you get a loan to pay off your credit cards, are you going to use that credit card again and bring the balance back up? Don’t do it if you’ll go back to old habits.
● Add a secured credit card (if needed)
○ Secured credit cards are credit cards that are backed by money in a savings account. Credit Unions offer them generously because there isn’t risk when it’s secured with money.
■ Use the secured credit card wisely. If you pay late, then this won’t have helped at all. If you use more than 30% of the available limit, then it won’t help much either.
● Stay current and give it time.
○ It may take up to 6 months to finally see the positive effects. Keep your credit card balances low or paid off. Keep paying your bills on time.
Hard Stops
Even if you have a score above the minimums, there may be aspects to your report that could put an immediate brake on things.
Here’s the list of things that could halt your loan in its tracks:
● Bankruptcy
● Foreclosure
● Short Sale
● Deed in Lieu of Foreclosure
Bankruptcy
There are several different types of bankruptcy, but we’ll focus on Chapter 7 and Chapter 13.
For Chapter 7:
● Conventional requires a 4-year waiting period from the discharge date
● FHA and VA require a 2-year waiting period from the discharge date
● USDA requires a 2-year waiting period from the discharge date
For Chapter 13:
● Conventional requires a 2-year waiting period from the discharge date
● FHA, USDA, and VA require at least 12 months of on-time payments in the payment plan. This requires court approval.
Foreclosure
After a foreclosure, you’ll have to wait too. This won’t apply to you as a first-time buyer, but I wanted to cover it because you’ll eventually be a second-time buyer.
A foreclosure is when you fail to make your payments and the lender takes the home.
Here are the wait times:
● VA: 2 Years
● FHA and USDA: 3 Years
● Conventional: 7 years
Short Sale
A short sale is when you sell the property for less than the remaining mortgage balance.
Here are the wait times:
● Conventional: 4 Years
● VA: 2 Years
● FHA and USDA: 3 Years
Deed in Lieu of Foreclosure
This is similar to a foreclosure, but is an agreement between the homeowner and the lender and avoids the public and lengthy foreclosure process.
Here are the wait times:
● Conventional: 4 Years
● VA: 2 Years
● FHA and USDA: 3 Years
I feel the need to summarize everything we just covered in this chapter. If you’ve been denied with a lower credit score, I hope you feel like there are other options you can explore. We covered manual underwriting, the benefit of mortgage brokers, and how to improve your credit in the meantime. Remember always, check your application for accuracy.
Once you’re approved for a mortgage, you can jump into the funnest part of the process: finding the home.
Contents
Chapter 1 How Much Can I Afford? 3
Chapter 2 How Much Cash Do I Need? 16
Chapter 3 How To Find The Down Payment 30
Chapter 4 Your Debt To Income Ratio 41
Chapter 5 Choose Your Lender 69
Chapter 6 You’ve Been Denied (Your Credit) 80
Chapter 7 Selecting a Real Estate Agent 90
Chapter 8 Shopping For a House108
Chapter 9 Under Contract: Inspections and Appraisals 121
Chapter 10 Under Contract: Rate Lock and Underwriting 129
Chapter 11 How To Lower Your Rate 144
Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.