Mortgage Denied in Florida or Miami? Reasons Why & Next Steps

If you’ve had a mortgage denied, DAK Mortgage can help you get approved by an alternative lender.

Mortgage Denied in Florida or Miami? Don’t Get Mad. Get Approved.

Got turned down for a mortgage to buy a new home or refinance your current home? You’re not alone.

It’s actually a very common experience, especially with ordinary banks.

Traditional bank lenders have little flexibility beyond Fannie Mae, Freddie Mac, FHA and VA guidelines. They do a very poor job understanding and serving people who fall even just a little “outside the box.”

But don’t get discouraged.

The good news is that there is a whole world of lenders outside the mortgage banking world who are picking up the slack. 

Many turned-down applicants – even those who have been declined by banks, not once, but even two or more times – can quickly rebound and successfully obtain a loan from another lender that has less stringent underwriting requirements than banks – or that even employ a completely different approach to lending. 

Being declined by your bank for a home loan is not a dead end!

The first step is to figure out why your bank turned you down. We list the ten most common denial reasons below, including poor credit history and excessive debt-to-income ratio.

The second step is to find an alternative lender who is more lenient toward your particular situation.  For instance, alternative lenders may be more willing to accept a lower credit score or a higher debt-to-income ratio.

Denial Rate for Home Mortgage Loan Applications

Denied mortgage loan stats

Unless you have a high-credit-profile, your chance of being rejected for a home mortgage loan is 32% – nearly one in three. This is particularly an issue in Florida, which historically has high rejection rates for traditional bank mortgage lending. 

Meanwhile, lenders have been tightening up credit availability across the country. May of 2022 saw a 3.2% decline in the Mortgage Availability Index – a key metric that measures the willingness of banks to extend credit to mortgage borrowers.

That number is already sharply down compared to its pre-pandemic level, and we have not seen any real recovery in bank willingness to lend. 

In other words, you are definitely not alone if you’ve had a denied mortgage loan.

Step 1: Determine why your mortgage was denied

What happens if you are denied a mortgage loan?  The first step is to ask, “Why?”

Each year, under the Home Mortgage Disclosure Act, the federal government collects data from thousands of financial institutions across the country regarding their home mortgage lending practices. One of the data points collected is “Reason for Denial.” The lender can choose up to three mortgage loan denied reasons.

10 mortgage denial reasons

Here are the reasons for mortgage denial, ranked in order from most to least common:

  1. Debt-to-income ratio
  2. Credit history
  3. Collateral
  4. Other (length of residence, temporary residence)
  5. Credit application incomplete
  6. Unverifiable information
  7. Employment history
  8. Insufficient cash (for down payment or closing costs)
  9. Lender exempt
  10. Mortgage insurance denied

SOURCE:  National Community Reinvestment Coalition

HELPFUL TIP
You have the right to know

Under federal law, you have the right to know the specific reasons why your home purchase or refinance loan application was rejected. The law requires the bank to either: (1) provide you an oral or written “statement of specific reasons” for the denial; or (2) simply notify you that you are entitled to the statement if you ask for it within 60 days of such notification.

Therefore, if your loan officer has yet to give you the required “statement of specific reasons,” you should ask for it. The bank’s statement must be “specific and indicate the principal reason(s). It cannot simply state, for example, “You did not meet our internal standards.”

SOURCE: Equal Credit Opportunity Act (implemented by “Regulation B” or “Reg B”), 12 C.F.R. § 1002.9(a)(2), (b)(2)

As we discuss in the next section, the reasons a mortgage loan is denied can all be overcome.

Step 2: Find an alternative lender with the right loan program for you

Chances are you may fit into at least two or three of the reasons for mortgage loan denial, and you may think they are insurmountable hurdles to getting a loan and that you have nowhere else to turn. 

However, you can still reach your goal of homeownership or refinancing.  Alternative lenders have a wide variety of special loan programs that are specifically geared to applicants who were turned down by their banks due to:

  • poor credit history
  • high debt-to-income ratios, e.g., student loans and credit card debt
  • insufficient collateral

These alternative lenders, as compared to big banks, have more relaxed requirements and are willing to take on more risk.

It is highly likely that your bank denied you because you did not satisfy their strict guidelines, which are known as “lender overlays” or “bank overlays”:

  • The federal government sets official minimum standards.
  • But most banks are more conservative and therefore apply additional guidelines on top of the official standards, hence the term “overlays.”

As mentioned above, one of the top denial reasons is poor credit history, and bank overlays may be the culprit for your rejection.

For example, while the Federal Housing Administration might require a minimum FICO score of 580, most lenders instill overlays depending on their risk appetite and may require a higher minimum FICO score of 620 or 640. 

The key, therefore, is finding a lender who imposes fewer restrictions or overlays than your bank, which will boost your chances of getting approved. 

No matter what the reason was for your loan being denied, there is a loan program out there for you.

HELPFUL TIP
It’s okay to shop around

The fact that your bank denied your home mortgage loan application will not appear on your credit report. The only trace left on your credit report will be a notation by the credit bureaus that your bank made a “hard inquiry” into your credit history before they ultimately denied your loan application. Luckily, hard inquiries only account for 10% of your FICO score.

Additionally, there is a built-in allowance for shopping around – after you are turned down by your bank and you apply to other lenders, the hard inquiries made by those lenders will not be treated as additional inquiries, but instead will be aggregated as one (as long as all the inquiries are made within a certain time frame, usually one month).

Mortgage loan denied? Try one of these loan programs

If you don’t quite match the standard conventional underwriting criteria at your bank, or even if you’ve already been turned down, don’t be discouraged. You may simply have been matched with the wrong type of lender. 

Most banks only want to lend on very straightforward deals that qualify under Fannie Mae, Freddie Mac, FHA, or VA standards. But there is a whole world of alternative, non-qualifying mortgage (non-QM) lending out there for borrowers just like you.

If you’ve been turned down for a mortgage for one of the common mortgage loan denial reasons in the top-10 list above, there’s still a great chance you can get approved by a non-QM lender, using some alternative underwriting criteria. 

As a top residential mortgage broker in Miami, here are some creative programs offered by some of the alternative lenders we work with addressing a variety of situations. 

Recent bankruptcy or foreclosure?

Did your bank decline you because you recently went through an event that adversely affected your credit history? Some lenders are willing to make loans to individuals who are just 1 day out of bankruptcy, short sale, foreclosure, or deed in lieu of a foreclosure – it depends on the specific foreclosure waiting period.

It is true that traditional bank lenders are reluctant to fund loans that don’t qualify under VA, FHA, Fannie Mae or Freddie Mac guidelines – each of which impose years-long waiting periods after significant events like a foreclosure or bankruptcy. 

But there are lots of lenders who don’t plan to sell their loans to Fannie Mae or Freddie Mac, who plan on keeping the loan on their own books. These are called portfolio lenders. That is, they are originating loans to hold in their own portfolio. And they therefore aren’t concerned with whether Fannie or Freddie will buy them. 

There are also lenders and loan programs that don’t use your credit history at all as a factor. If the property is valuable enough to secure the loan, they’ll approve it.

Low credit score?

Was your credit score too low? Some lenders accept FICO scores as low as 580 or even 500. 

We even have loan programs where your credit history is a non-issue. Even if you have current delinquencies, defaults, charge-offs, or bankruptcies, you can still qualify for a loan. 

While traditional bank mortgage lenders aren’t set up to handle these types of borrowers, we work with many lenders who don’t require a credit history at all. If the property itself, or other collateral, is sufficient to secure the loan, you can still get approved for a great mortgage. 

In one example, a woman we worked with had recently gone through a bankruptcy, and had no current credit score or credit cards at all. We helped match her with a lender who was willing to look at an older credit report – and lent her the money she needed to move out of her apartment and into a home of her own

SUCCESS STORY
How to buy a beach home with bad credit

We recently worked with a doctor and his wife who wanted to buy their dream beachfront home on the West Coast of Florida. They were under contract and needed to close quickly. The problem: The doctor had some serious derogatory information on his credit report, including a $500,000 charge-off on a Small Business Administration loan. 

Traditional bank lenders wouldn’t touch the application. They wound up wasting a lot of time trying to work with bank lenders. But the clock was ticking, and they needed to come up with the financing or lose the home to another buyer. 

But we work with plenty of niche lenders who were willing to make the loan based entirely on the value of the property. The lender wasn’t concerned about the doctor’s personal credit history, because the property was sufficient by itself to secure the loan. 

And because there was no need for income underwriting, verification, or tax returns, the lender was able to close quickly, before their contract deadline. 

Problems showing your income?

Too much monthly debt? Some lenders accept debt-to-income ratios that are as high as 50 to 55%. 

Also, to help lower your debt-to-income ratio, some lenders consider a variety of alternative income streams, such as rental income, boarder income, and Airbnb, Vrbo, or HomeAway income. 

Asset depletion program

Further, some lenders will consider your financial assets that could be readily converted to income as resources that will help qualify you for a loan. 

For example, under a lender’s asset depletion program, you could show assets in savings accounts, mutual funds, or even bitcoin or other cryptocurrency

Asset depletion is a great match for high-net-worth borrowers with considerable liquid assets. Under this program, the borrower makes up for the difference between the loan to value percentage they qualified for using traditional underwriting and and their desired LTV by pledging 100% of the difference if they use cash assets or 200% if they use other non-cash assets. 

No-ratio program

For other situations, we may suggest a no-ratio program. These loans can be a great solution for self-employed borrowers who don’t have easily producible W-2s or relevant tax returns in hand. 

No-ratio loans don’t require proof of income documents. 

If you’re employed, they just contact your employer. If you’re self-employed, then you can meet this requirement by providing a letter from your CPA, accountant, or tax preparer verifying your self-employment, title, ownership percentage, and business inception date. 

Here’s an example of a situation where a no-ratio loan was just what the doctor ordered: 

  • Two clients of ours were nearing the end of a bridge loan term and needed to quickly refinance to a more permanent loan with lower mortgage rates. 
  • The catch: One borrower had been furloughed during the pandemic, while the other had a DTI ratio that would probably disqualify them under conventional financing. 
  • We helped them find a no-ratio loan that didn’t require income verification, and the DTI ratio wasn’t even calculated. The borrowers were able to get a much better loan and cut their interest rate in half. 

Need a higher loan amount?

Was your requested loan amount considered too high? Currently, conventional bank lenders are hesitant to approve jumbo loans in Florida above the Fannie Mae and Freddie Mac loan limit – currently $766,550 for single-family residences. in most counties.  These conventional lenders frequently either turn down bigger loans outright, or apply much stricter credit standards or more onerous terms. 

This is because they can’t sell these larger loans upstream to Fannie Mae or Freddie Mac. They have to carry them on their own books – and assume all the risk.

But we work with alternative, non-QM portfolio lenders every day who have an appetite for making  jumbo and even super jumbo loans into the millions of dollars. 

We can find lenders willing to make these jumbo and super-jumbo loans, such as an asset depletion mortgage, if the property or other forms of collateral warrant it. 

Some of our portfolio lenders are willing to accept loan-to-value ratios as high as 90% to 95% to offer you the higher loan amount you are seeking. 

Here’s a case where we worked with a customer to find a $2 million loan to buy a luxury condo in Miami – even though the condo association didn’t have reserves and was considered “unwarrantable.”

No tax returns?

Did your bank require extensive paperwork? Other lenders with less stringent guidelines are willing to accept less documentation or alternative forms of documentation (e.g., bank statements or W2s/1099s, instead of tax returns).

We have programs that don’t require tax returns to verify income. This can come in handy for borrowers who just started a new job.  If you’re self-employed, you can qualify for a loan based on your personal or business bank statements and/or professionally-prepared business profit and loss statements

Or you can use assets, rather than income, to qualify for your mortgage, under a cross-collateralization or asset depletion program. 

Bridge loans

Many times applicants get turned down for a traditional mortgage because of some short-term, temporary issue that they just need a bit of time to fix. 

Whatever your financial situation, it’s often possible to solve the problem with a shorter-term loan for a few months to a few years. Sometimes called a “residential bridge loan” or “hard money loan,” these loans are based entirely on the value of the asset or other collateral. Your credit history, employment history, or tax returns aren’t a factor. 

Common reasons to get a bridge loan

When you need things to move quickly, or you don’t have a lot of documentation for a conventional loan or income-based underwriting, a bridge loan might be just the ticket.  

Bridge loans come in handy in many situations:

  • Lack of income history.  Sometimes, borrowers may have an inadequate income history. Or they need another year of tax returns. 
  • Recent credit event.  Or a borrower may have had a bankruptcy three and a half years ago and they just need another six months before they become financeable with a conventional loan. 
  • Construction.  Real estate investors use these loans all the time in order to complete construction or renovations, for example, prior to renting or flipping a property. 
  • Competitive bidding.  Bridge loans can be a great solution in a competitive bidding situation, where the seller wants to go with the buyer who can close quickly. You can also use them to buy a new property while you wait for your old home to get sold. 

In short, you can use a bridge loan to finance or refinance a property until you recover from whatever circumstances led to your initial bank turn-down. 

How bridge loans work

Generally, these loans don’t rely on your income history or your personal credit history.  Your property or other collateral secures the loan.

As a result, these loans can be approved very quickly, with a minimum of paperwork and hassle. There’s no income verification, no tax returns, and no individual credit report needed. 

Furthermore, your debt-to-income ratio isn’t a factor. 

Interest rates are a little higher. And repayment terms are shorter, and may come with a “balloon payment” at the end of the term. 

The exit plan is usually to refinance when you have a better income history or otherwise improve your credit profile, so you can get a lower-interest or longer-term loan later.

Why contact DAK Mortgage if your bank denied a loan for a house

Wading through the guidelines and overlays of multiple lenders and contacting them directly is difficult, if not impossible.

As a practical matter, lenders typically do not publish their overlays, but instead distribute them exclusively to banking officials such as licensed mortgage brokers.

Also, it is simply not feasible to even find the lenders – many alternative lenders do not advertise widely, but instead rely on mortgage brokers to refer them potential borrowers.

A good mortgage broker with strong connections can quickly and simultaneously shop your loan at several different lenders for the best possible interest rate and terms.

Additionally, mortgage brokers are accustomed to helping individuals who have previously had a mortgage application denied by their banks.

In short, working with a mortgage broker gives you access to a variety of creative mortgage financing options.

Mortgage denial: key takeaways

“What happens if my mortgage application gets rejected?”  That seems to be a daunting question.

But you are now armed with the knowledge that:

  1. Being turned down for a mortgage loan is very common, especially in Florida; 
  2. You have the right to know the specific reasons for the denial;
  3. The reasons why mortgage applications get rejected can all be overcome; and
  4. There are plenty of alternative lenders who would be willing to embrace your particular situation and lend you money.

Think you can’t get a home loan?  Feel like you’ll be denied for a mortgage loan again?  Think again.  We can help you get approved!

 See below videos for some sample success stories of how we helped individuals, who were previously turned down by their banks, obtain home mortgage loans.  We would be glad to help you as well.

Table of Contents

Mortgage declined FAQs

Can you reapply if a mortgage is denied?

Absolutely.  We frequently help homebuyers and homeowners reapply to different lenders.  In fact, many of our clients were previously denied by, not one, but two or three other lenders.  By matching them with a lender with more flexible guidelines, we help our clients get that elusive mortgage approval.   

How often does a mortgage get denied?

More often than you think.  Unless you have a squeaky clean credit profile, your chance of being rejected for a home mortgage loan is 32%.  The application process can be quite rigorous, especially for a traditional bank loan. The lender will scrutinize your file in two main ways.  

First, the lender will examine your personal creditworthiness and monthly income.  The lender must be satisfied that you’ll be able to make the mortgage payments.

Even if you convince the lender of your repayment ability, that is only half the battle.

Second, the lender will also closely examine the property itself by conducting a comprehensive appraisal to make sure the market value is high enough.  Also, some lenders find certain property types too risky such as nonwarrantable condos.

What are red flags for underwriters?

When analyzing your file, the lender’s underwriting team will globally assess the five C’s of credit:  (1) character; (2) capacity; (3) capital; (4) conditions; and (5) collateral.  Generally, the more red flags there are across those categories, the lower your chances of getting approved for a loan.

What can cause a mortgage loan to fall through?  Here are common red flags:

  • Low credit score 
  • Recent credit events
  • High debt-to-income ratio
  • Recent job change
  • Lack of sufficient reserves
  • Problems with the property, e.g., low appraised value

How long does declined credit stay on file?

The fact you were denied a mortgage loan won’t appear on your credit report. There will only be a notification that the lender made a “hard inquiry” into your credit history before they denied your loan application.  Hard inquiries are automatically removed from your credit report after two years.