This is a common problem facing many borrowers.  Although this can happen, if you work with a qualified loan officer from the beginning and you provide all of the necessary documentation in a timely manner, then the chances your loan will be denied is slim.
Meanwhile, suppose it happens and you do get “Denied”. Here are three things to do immediately:
1. Find out what happened. Your lender has 30 days from your application date to explain in writing why the loan was denied. This explanation, called an “adverse action notice,” must state a specific reason for the denial. The good news is that the three most common reasons for denial can be corrected in time…. insufficient down payment, too much debt and poor credit history. You can apply again once you have saved more money, reduced your debt, or raised your credit score by paying your bills on time for a while.
2. Request a second opinion. Some lenders offer a second level of review for mortgage loans in which you can plead your case. You may yet qualify if you can convince the secondary loan reviewer such as a supervisor that your credit history was marred by an isolated cataclysmic event, such as unexpected hospital bills that ruined your finances.
3. Keep shopping. Just because one lender turns you down doesn’t mean there aren’t a dozen ready to approve your loan. Banks and mortgage companies set different underwriting criteria based on their business objectives. Find one that’s right for you. This is why we are partial to using brokers. Mortgage brokers have access to many banks whose guidelines may all be different. These relationships enable brokers to quickly identify the right lender for you based upon your scenario.