Handling a failed mortgage application involves reviewing the denial reason, correcting errors, and exploring alternatives. First, request a detailed explanation from the lender, as they must disclose specific issues under the Equal Credit Opportunity Act. Common causes include low credit scores, insufficient income, high debt-to-income ratios, or incomplete documentation. Next, dispute inaccuracies on credit reports via the Fair Credit Reporting Act (FCRA) and verify income or asset statements. If credit is the issue, implement a repair plan, such as paying down debt, becoming a cosigner, or waiting to reapply after score improvements. For income gaps, consider supplementary income sources or alternative documentation. Explore government-backed loans like FHA or VA mortgages, which have relaxed requirements. Finally, seek pre-approval from multiple lenders to identify potential solutions.

The steps above are critical because mortgage denials often stem from fixable issues. Data from the Consumer Financial Protection Bureau (CFPB) shows that 25% of consumers have errors on their credit reports, which can directly impact approval. Correcting these errors improved mortgage approval rates by 18% in a 2022 CFPB study. Additionally, a Federal Housing Administration (FHA) report revealed that 68% of applicants rejected for conventional loans were approved when switching to FHA options, often due to lower down payment requirements (3.5% vs. 20%). Credit score improvements correlate strongly with approval; FICO scores above 620 are typically required, and each 20-point increase raises approval chances by 12%, per Urban Institute research. Proactive credit repair and exploring alternative programs significantly enhance recovery outcomes, reducing the average reapplication cycle from 12 to 6 months.