There are a lot of reasons someone might get denied for a mortgage, but almost all of them fall into one of three categories:

Credit
Assets
Income

If you know which one is the issue, there is usually a clear path to fix it. Here’s what that looks like.

Credit

A very large percentage of loan decisions are determined at an automated level. They call it AUS or Automated Underwriting System.

It isn't just the score that's kicking out a 'denial'

It's the pattern of late payments and other factors.

Things that usually cause problems:

• Recent late payments (within 12 months)
• High credit card balances compared to the limit
• Collections that are actively reporting
• Not enough credit history (thin file)

Most loans are available starting at a 580 to 620 score, depending on the program. So the goal isn’t a perfect credit score.

How to turn it around:

• Get credit card balances below 30% of the limit.
• Do not rush to pay collections without a plan. Paying them can sometimes hurt your score by updating the last activity date. Have your loan officer run a “what-if” scenario first.
• If you have very little credit history, build 2 to 3 small trade lines. A secured card, a small installment account, or being added as an authorized user on a card with no lates and low balance.

This is usually the fastest category to fix, because the score can move within 30 to 90 days if the right steps are taken.

Even if that score won't jump up, you might be able to make it work. There is a process called "manual underwriting"

Manual underwriting still needs a fairly clean repayment record for the past 12 months, but if you have compensating factors like a higher down payment, cash reserves, or a good salary compared to debts, it could be your path to immediate approval.

Ask if your lender does manual underwriting.

Check out this post on getting a mortgage with bad credit for more help.

Check out this post on getting a mortgage with no credit history.

Assets

Assets means if you have enough money for down payment and closing costs

Minimum down payments:

• FHA requires 3.5% down.
• Conventional allows 3% down for first-time buyers.
• VA and USDA are 0% down.

Then there are closing costs, which are usually 2% to 4% of the purchase price. These cover things like title insurance, lender fees, taxes, and prepaid items.

How to turn it around:

• Down payment assistance programs exist in every state. Here's a guide.
• You can request seller credits to help cover closing costs.
• Gift funds from family are allowed on most loan types.
• You can use 401(k) funds either through a withdrawal or loan.
• If you need time to save, create a 6 to 12 month plan with an exact monthly savings target.

Income

Most people don’t get denied because they don’t earn enough.

They get denied because too much of their monthly income is going toward existing debt.

Lenders calculate:

Total monthly debt payments + estimated mortgage payment divided by gross monthly income

This is your debt-to-income ratio (DTI)

How to turn it around:

• Paying off one car loan or one credit card can sometimes drop DTI enough to qualify immediately.
• If you are self-employed, the income on your tax return matters. High write-offs reduce qualifying income. Some lenders offer programs where they verify deposits in a business account, rather than using taxes.
• Commission, overtime, or bonus income usually requires a two-year history for it to count.
• Adding a co-borrower can increase qualifying income even if the co-borrower isn’t living in the home.

Here's a separate post on lowering your DTI to qualifying levels.

Those are the 3 main buckets of reasons people get denied.

Exception

One exception would be the collateral

If the house is in terrible shape, then it doesn't matter how good of a borrower-profile you have. The house isn't up to snuff.

There's a way around that though. Check out this post on financing a fixer-upper

I hope this helps!