TURNED DOWN FOR A MORTGAGE?

Have you been turned down for a mortgage? You're not alone. Millions of Americans will face the same problem in 2007, and probably for years to come. With the credit industry reeling after problems with subprime mortgages, lenders are now more strict with their guidelines for issuing loans.

If you've been refused for a mortgage, there are some do's and don't's.

Don't go running around town to other lenders, hoping that one of them will approve you. Every time you apply for a mortgage--or any credit--the credit reporting agencies are notified. If a lender sees from your credit record that you've applied for a number of loans in a short period of time, that gives the impression that you're trying to get credit for suspicious or unusual reasons.

The first thing you should do is request a written explanation from your lender as to why you were turned down for a mortage. By law, your lender must provide you with this information within 30 days from your request. This explanation is called an "adverse action notice," and it will detail the reasons why you were refused a mortgage.

This adverse action notice may be able to help you get a mortgage by showing you where your problem areas lie.

One common reason for mortgage refusals is a bad credit history. You can request a copy of your credit report from one of the three major credit reporting agencies--Experian, Trans Union, or Equifax. If your credit score is below 620, you're in what is called "subprime" territory, meaning that you're regarded as a credit risk. Before calling it quits, though, examine your credit report carefully, looking for mistakes. It's not uncommon for erroneous information to show up in a credit report. If you find a mistake, contact the credit reporting agency or the creditor who made the mistake to have your record corrected.

The adverse action notice may indicate that you were turned down for a mortgage because of your income or employment history.

If the problem was your income, make sure that you provided your lender with all of your sources of income: overtime; bonuses; child support; retirement income; dividend income...in short, any amounts of money that you receive on a fairly regular basis.

It may also be that you were turned down for a mortgage because your income was not sufficient for the amount of money you wanted to borrow. If that's the case, then consider finding a less expensive home to buy.

If your employment history was the cause of your mortgage refusal, there may be little that you can do but wait until you've been employed long enough to meet the lender's requirements. You might also try asking a close friend or relative to co-sign for your mortgage, assuming that person trusts that you're gong to be gainfully employed for the foreseeable future.

Another reason you may have been turned down for a mortgage is that you have an insufficient credit history. In other words, you haven't borrowed enough money in the past. While that may seem like a strange reason, from a lender's perspective it makes perfect sense: how can a lender know how you handle debt if you've never had debts?

If an insufficient credit history was the reason you were turned down for a mortgage, that's a hurdle that will take a little more time to correct. You'll need to establish some sort of credit--a credit card, a car loan, or any extension of credit to you--and make timely payments. Once you've shown that you are creditworthy, your chances of being approved for a mortgage will increase dramatically.

Your mortgage refusal may have been due to your not having a sufficient amount of money for a down payment. If that's the case, you have some options.

One is to apply for an FHA-backed mortgage. FHA loans require down payments of as little as 3%. Or, if you served in the armed forces, you may qualify for a veterans loan, which requires no down payment. If the home you were looking to purchase is in a rural area, you may qualify for an RHS loan, which also requires no down payment. Yet another option is to purchase private mortgage insurance (PMI), which can allow you to put down as little as 5%.

In the end, though, the best way to avoid being turned down for a mortgage is to know in advance what lenders will examine in considering your loan request. For more information, read our articles on the mortgage approval process and mortgage limits.