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Don't be surprised if your friendly lender, the one who invites you to sit down and apply for a mortgage, ushers you politely out the door empty-handed after you've chatted a bit.
The sudden chill isn't personal. The Mortgage Bankers Association, or MBA, in Washington, D.C., estimates that about half of all mortgage applicants are now being turned down. Though refinancing approvals remained static, the acceptance rate on mortgage applications suffered a 10 percentage-point drop, from 63 percent in the first half of 2007 to 53 percent in the first half of last year, according to mortgage data tracked semi-annually by the association. Since then, further tightening of credit standards means at least half of mortgage-seeking consumers can't squeeze through to acceptance, says MBA spokeswoman Carolyn Kemp.
Instead of yielding to shame, anger or any of the usual emotions associated with rejection, today's consumers who are intent on buying or refinancing should adopt a pragmatic stance, since clear-eyed determination may eventually land them a loan.
Here's how.
1. Get a read on the reason
If you've submitted a formal application, federal law dictates that you're entitled to a formal rejection.
Expect an "adverse action" notice, spelling out the reasons for turning you down, which these days is likely to state that the loan amount you're seeking is too large compared to the current appraised value of your home, says Joe Theisen, president of the Wisconsin Mortgage Professionals Association and branch manager of Fairway Independent Mortgage Corp. in Madison, Wis.
If it's not your home's value that's the issue, it may be your personal credentials, such as your creditworthiness, work history or debt load.
When credit is the issue, an adverse-action notice is required, naming the credit reporting agency that provided the data on which the lender based its decision, according to Federal Trade Commission rules. You're also entitled to a free credit report; see the FTC Web site for more information.
Given the odds of acceptance, a lender may not require you to pay a few hundred dollars to submit a formal application, which includes the cost of a professional appraisal on the property. Instead, he may pull a credit score, and tell you what you're likely eligible for, says Marc Savitt, president of the National Association of Mortgage Brokers.
2. Find a fix
Qualifying for a mortgage isn't a black-and-white issue. Rather, different loans at varying rates may be available, depending on how risky a lender thinks a particular mortgage will be. If you don't qualify at 5.5 percent, for instance, you may be able to get the nod for a loan at 6 percent or 6.5 percent.
However, many borrowers, especially those who are refinancing, need a certain rate to reach the monthly payment they want. Not only are rates higher for risky loans, but there are now upfront "point" charges dictated by Fannie Mae and Freddie Mac, the two big mortgage guarantors currently under government control, Savitt says.
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