How To Avoid Mortgage Denial During The Loan Process

Buying a home is exciting but getting denied for a mortgage during the loan process can feel devastating. The truth is, many borrowers get denied not at the beginning, but in the middle of the mortgage process. That’s why it’s so important to understand how to avoid mortgage denial during the loan process. At Gustan Cho Associates, we work with thousands of homebuyers across the country many who were previously denied by other lenders. In this guide, we’ll show you how to avoid mortgage denial during the loan process and how to keep your home purchase on track.

How To Avoid Mortgage Denial During The Loan Process

To help you protect your home purchase, here are the top tips on how to avoid mortgage denial during the loan process.

1. Don’t Change Jobs or Income

Why it matters: Underwriters verify your employment multiple times—once at the start, and again before closing.
How to avoid denial:

• Stay at your job until after you close
• Avoid switching from W-2 to 1099 or self-employed
• Notify your loan officer before any changes happen

2. Keep Your Credit Score Stable

Why it matters: Lenders often pull your credit again just before closing. A lower score could cause a denial or force you into a different loan program.
How to avoid denial:

• Refrain from applying for new credit card or loan
• Keep paying all bills on time
• Avoid running up your credit card balances
• Don’t co-sign for anyone else

3. Avoid Large or Unverified Deposits

Why it matters: Any large deposit outside of normal income must be sourced and documented. Unverifiable funds = red flag.
How to avoid mortgage denial during the loan process:

• Don’t deposit cash into your account
• Keep gift money documented (with a gift letter and proof of source)
• Let funds “season” in your account for at least 60 days
• Avoid moving money between accounts without a clear paper trail

4. Stay Current on All Your Bills

Even one 30-day late payment during the mortgage process can tank your loan. How to avoid mortgage denial:

• Set up auto-pay or payment reminders
• Stay on top of car loans, student loans, credit cards, utilities, and rent
• Keep an eye on your credit report for errors or unexpected delinquencies

5. Don’t Open New Debt

Lenders calculate your debt-to-income (DTI) ratio based on your current monthly obligations. Adding new debt could push you over the limit.
How to avoid mortgage denial:

• Don’t buy a car, furniture, or appliances on credit
• Don’t open a new credit card for rewards
• Wait until after closing for major purchases

6. Provide All Documents Promptly and Accurately

How to avoid mortgage denial:

• Send requested documents right away (tax returns, pay stubs, bank statements)
• Double-check for accuracy (matching names, dates, balances)
• Avoid sending blurry or cropped images
• Disclose everything up front—even if you think it won’t matter

7. Keep Communication Open With Your Loan Officer

Lack of communication is a top reason why loans fall apart. Your loan officer is your advocate—but they need your help to get you to the finish line.
How to avoid mortgage denial:

• Respond quickly to emails or calls
• Notify your loan officer about any changes (income, job, finances)
• Be honest, delays in sharing information can cause denials

8. Understand Loan Program Guidelines

Each loan program has unique rules. For example:

• FHA allows lower credit scores, but still has rules for collections and bankruptcies
• Conventional loans have tighter DTI limits and credit score minimums
• VA loans require residual income and often a clean CAIVRS report
• USDA loans require specific income and property eligibility

How to avoid mortgage denial? Work with a lender who specializes in government and non-QM loans—and knows how to structure your file correctly.

9. Watch Out for Appraisal Issues

Sometimes, the issue isn’t you it’s the property. The home must meet minimum standards and appraise at or above the purchase price.
How to avoid mortgage denial:

• Work with a qualified real estate agent
• Get a second opinion if the value comes in low
• Consider FHA 203k or renovation loans if repairs are needed
• Be prepared to renegotiate or walk away if needed

10. Avoid Making Big Life Changes Mid-Process

Buying a home is a major life event. Keep other life changes on pause until after you close. Avoid changing marital status, adding or removing someone from the application, and moving out of state or out of the job market.

How Much House Can I Afford Versus How Much Can I Qualify

Keeping a realistic budget. Many borrowers are concerned with their debt to income qualifications. It is important to stay within a monthly budget that will be comfortable for your long term. Just because your debt to income may qualify you to a $2500 mortgage payment, it does not mean that is a comfortable payment for you and your family. Make sure you speak with your loan officer about your comfortable monthly payment. Go over specific properties with your loan officer before submitting an offer. You want to know your total housing payment for the specific address.

Online Home Counseling

Online home counseling:

• If you are in the market for a home loan but have less than perfect credit, taking an online homeownership counseling course may be in your best interest
• Not only does the underwriter like to see you are taking the initiative to have a successful payment history on your mortgage, but you may also learn a lot from this class
• Homeownership is much different than renting
• When something breaks or goes wrong, you do not have a landlord to call
• You are responsible to fix the house yourself
• Most of the time your insurance deductible will be at least $1000
• For example, if you have a water pipe break and only cost $800 to repair, it does not make sense to involve your insurance
• It is important to have a slush fund for some minor repairs around the house
• The homeownership class is free and will allow you upfront knowledge and prepare you for what to expect during the homeownership

Here is the link to enroll in the FANNIE MAE FRAMEWORK homeownership counseling online course.

Reserve Requirements

Reserves can be incredibly important for pre-approval purposes. Reserves are defined as liquid capital left in the bank after down payment and closing costs. It can also be in the form of retirement funds. A mortgage company will not hold your reserve money, but we do need to document you have the funds. One month of reserves is equal to one month of the total mortgage payment, including principal, interest, taxes, insurance, and any homeowner’s association dues. If you have three months worth of mortgage payment as liquid reserves, that is considered a compensating factor and will generally increase your odds of approval. The more funds you have at your disposal will only increase your buying power.

Is The Loan Process Stressful?

Many of our readers are not familiar with the mortgage process. Most Americans hear nightmarish stories on how hard it is to purchase a property. The truth is with the right mortgage team, the process is very smooth. The first step of the process is to call Mike Gracz on (800) 900-8569 (or email gcho@gustancho.com). You and Mike will have a one-on-one mortgage consultation going over everything from your credit, budget, and mortgage needs. Mike will then pair you with a licensed loan officer in your state. You will fill out an online mortgage application and upload the required documentation.

Below is a list of what you can expect to upload.

• Last 60 Days Bank Statements – to source down payment
• Last 30 Days Pay Stubs
• Last Two Years W2’S
• Last Two Years Tax Returns
• Driver’s License

After you have completed the application, your loan officer will send you a pre-approval letter or discuss
steps to qualify as soon as possible.

Shopping For A Home With A Pre-Approval Letter

With your pre-approval letter, you will then pair yourself with a licensed realtor who can assist you in finding the home that’s best for you and your family. Now it’s time to submit an offer. Once you find a home you were looking for, you will submit the offer with your specific negotiations. Assuming your offer is accepted, the mortgage process truly begins. The first step of the process is to electronically sign loan disclosures for the specific property. Your mortgage processing team will then order all required verifications in the appraisal report.

Home Appraisal

The appraisal is paid for upfront by you, the borrower. While your mortgage team is waiting for the appraisal to be completed, your file will go through processing and be submitted to the underwriter. The underwriter will then review all documentation and send you an initial approval. This initial approval will have some conditions you need to satisfy.

Typical conditions include updated pay stubs and bank statements to keep all documentation current. Once you send in all items required by the underwriter, you will be put in line for clear to close. Assuming the documents satisfy all of your conditions, your loan will then be issued a clear to close.

Your loan team will then coordinate with the title company and send you the final figures for closing. Congratulations, you now are ready to sign documents with your title company and get the keys to your new home. As mentioned above, this process is not very difficult. You just need to have the right team of mortgage professionals. We encourage you to reach out to Gustan Cho Associates today, we are experts in assisting all parties for a smooth closing.

Qualifying For A Mortgage With A Lender With No Lender Overlays

From the information above, you should be able to see Gustan Cho Associates are experts in the mortgage process. Our loan officers and support staff are up to date on mortgage guidelines and are here to help you and your unique situation. You may have been turned down by another lender or not getting the customer service you deserve. Our team is ready to help seven days a week. We encourage you to check out our reviews and continue to research our company. We are able to lend based on agency guidelines and no additional lender overlays. Even if you have been turned down in the past, please reach out to the Gustan Cho Associates today.

Frequently Asked Questions: How To Avoid Mortgage Denial During The Loan Process

1. What is the best way to avoid mortgage denial during the loan process?

The best way how to avoid mortgage denial during the loan process is to keep your credit stable, avoid significant financial changes, and stay in close contact with your lender. Always be honest on your application and submit documents quickly.

2. Can changing jobs affect how to avoid mortgage denial during the loan process?

Yes. Job changes can hurt your approval. One key step in avoiding mortgage denial during the loan process is staying at your current job until after you close on the home.

3. How do large bank deposits impact how to avoid mortgage denial during the loan process?

Unexplained deposits raise red flags. If you’re learning how to avoid mortgage denial during the loan process, make sure all deposits are documented and match your income or savings history.

4. Can a drop in credit score ruin my chances, and how can I avoid mortgage denial during the loan process?

Yes, a lower credit score can lead to denial. A top tip on how to avoid mortgage denial during the loan process is to keep paying bills on time and avoid new credit inquiries.

5. Does disputing credit accounts affect how to avoid mortgage denial during the loan process?

Absolutely. Disputes can delay or stop underwriting. If you want to know how to avoid mortgage denial during the loan process, avoid filing new disputes while your loan is in progress.

6. Can new debt mess up? How can mortgage denial be avoided during the loan process?

Yes. New credit cards or loans increase your debt-to-income ratio. A significant rule in how to avoid mortgage denial during the loan process is not taking on any new debt.

7. Why is fast document delivery important in how to avoid mortgage denial during the loan process?

Delays in submitting documents can stall your loan. Part of avoiding mortgage denial during the loan process is giving your lender everything they ask for quickly and thoroughly.

8. How do late payments hurt? How do you avoid mortgage denial during the loan process?

Paying a bill late once can damage your credit score and raise lender concerns. To succeed in how to avoid mortgage denial during the loan process, stay current on every bill until closing day.

9. Should I make big purchases before closing if I want to know how to avoid mortgage denial during the loan process?

No. Avoid buying cars, furniture, or anything with credit. One of the most important ways to avoid mortgage denial during the loan process is keeping your financial profile steady.

10. What kind of lender helps with how to avoid mortgage denial during the loan process?

A flexible lender like Gustan Cho Associates can help you avoid mortgage denial during the loan process, especially if you have past credit issues, high DTI, or non-traditional income.