If buying a home for the first time, you may be hesitant to submit a loan application due to fears of the lender rejecting the request. This is a common fear, which is usually groundless. Because of a variety of home loan programs, most applicants are approved for a home loan. Different loans are designed to assist buyers with no down payment, closing fees, high debt-to-income ratio, bad credit, and so forth. Of course, loan rejections do occur. However, rejections are often due to borrowers not supplying requested documentations or applying with the wrong type of lender.

After receiving notice of a mortgage loan rejection, homebuyers can request a written statement, in which the lender must state the specific reason for loan rejection. The three most common reasons include excessive debts, poor credit history, and no cash savings for the down payment. By law, lenders must provide this statement within 30 days of rejecting a loan application. In some cases, loan rejections occur because applicants failed to provide all requested documentations (tax returns, W-2's, paycheck stubs, etc.)

Providing details to a loan reviewer may be advantageous, especially if special circumstances contributed to the initial loan rejection. For example, if an illness resulted in months of missed employment, which was followed by a stream of late bills or payments, this could explain a low credit score. And, if the potential borrower is currently working and making regular payments, this could justify a loan approval.

Homebuyers may also receive a mortgage loan rejection if they apply with the wrong lender. For example, if your credit score is below average, and you require 100% financing for the home purchase, do not apply for a conventional loan with a prime lender. Conventional loans have a typical loan to value (LTV) of 80%. To qualify, borrowers will need a 20% down payment. Secondly, prime loans require good credit.

Prior to applying for a mortgage, shop around and compare lenders. First, list your mortgage needs. Do you need 100% financing? Do you need closing costs assistance? What is your credit rating? Next, choose lenders offering loan programs that match your loan needs. Mortgage brokers can help in this search.