Mortgage Denied at Underwriting or Closing? Here’s What You Need to Know

Mortgage loan application stamped loan denied on paperwork

If your mortgage was denied during underwriting or even at closing, this guide will help you understand what happened and what you can do next. The first step is to understand why the lender denied your loan. That reason determines what rights and protections you have under federal law.

The goal of the United States legal system is to help everyday people become homeowners. The challenge is that most borrowers do not know what those laws are or how to use them. This article explains your options so you can move forward with confidence and fight for your home on solid legal ground.

Home Loan Denied at Underwriting: Common Reasons

The underwriting process happens before the actual closing. It is the stage where the lender decides whether your loan meets its guidelines. Most mortgage denials occur at this point.

The most common reason a mortgage is denied during underwriting is credit. Every lender has its own criteria, but most look for the same warning signs such as missed payments, recent collections, or delinquent debts in your credit history

Mortgage lender reviewing a home loan contract with a borrower at a desk, small red model house and house keys nearby

If you are denied a mortgage because of credit, the lender must tell you that in writing and explain what specifically in your credit report led to the decision. They cannot simply say you have bad credit. The explanation must identify the factors that caused concern, such as too many delinquent accounts, too many recent inquiries, or too many accounts with past due balances.

The lender must also tell you which credit bureau it used to review your credit. Usually this will be one of the three major bureaus: TransUnion, Equifax, or Experian. Once you have that information, check your own credit report to see whether the information used in the decision was accurate.

Credit reports are wrong more often than people think. You may find accounts that do not belong to you or balances that should have been reported as paid years ago. This is why it is so important to review your credit report closely if your mortgage was denied for credit related reasons.

Credit report showing score and history used in a mortgage underwriting review leading to a loan denial.

If the information the lender relied on was accurate, at least you know where you stand. There are still steps you can take to strengthen your application, which we will cover in the next section. But if the information was inaccurate, you have rights under the Fair Credit Reporting Act (“FCRA”) to dispute and correct it.

Other less common reasons for an underwriting denial include employment or income verification problems, a high debt to income ratio, and appraisal issues. This article focuses mainly on credit based mortgage denials because that is where Reznik Consumer Law can help, but if your denial involved one of these other issues, consider consulting a real estate or mortgage attorney in your state.

Mortgage Loan Denied in Underwriting: What to Do Next

If your mortgage loan was denied in underwriting because of credit, the first thing to check is whether the lender provided everything it was required to under federal law.

Under the Equal Credit Opportunity Act (“ECOA”), a lender must send what is called an adverse action notice when a credit application is denied. If you didn’t receive this notice, this could be a violation of the ECOA and you may have legal recourse against the lender.

Law books and gavel representing federal consumer protection laws like the ECOA and FCRA.

The lender must also provide additional disclosures under the FCRA, including the credit bureau and credit score used, as well as the key factors that affected that score. The purpose of providing this information is to allow you to verify whether the credit data the lender relied on was accurate.

If the information was accurate and the denial justified, take this as an opportunity to rebuild your credit naturally. Be cautious about credit repair companies that promise quick fixes. Using one of these services usually makes things worse and puts money in other people’s pockets.

If you reviewed your credit report and found errors, you have the right to dispute the information and get it removed under the FCRA. I walk through the dispute process step-by-step in the following article: How to Fix a Credit Error in 3 Simple Steps.

If the error is not fixed after the dispute process then you have the right to file an FCRA lawsuit against the credit bureau and creditor still reporting the inaccurate information.

Mortgage Loan Denied at Closing: What It Really Means

Most mortgage denials happen during underwriting, not at the actual closing. In fact, when people say they were denied “at closing,” it often means the denial occurred during final underwriting, before the funds were released.

True denials at the closing table, with lawyers and documents ready to sign, are extremely rare. What usually happens is that the lender discovered something new in a last minute credit pull, income verification, or document review that changed your eligibility.

Real estate agent handing house keys to a homebuyer representing a mortgage loan that was denied at closing.

The reasons are the same as those discussed earlier — credit issues, unverifiable income, or an updated debt-to-income ratio. The difference is only timing. If your credit report changed between the initial underwriting decision and final review, the lender may have decided it could no longer approve the loan.

If this happened to you, request the adverse action notice and the required disclosures identifying the credit bureau and reason for the decision. You are still entitled to those protections under federal law, even if the denial came right before closing.

Final Thoughts

A mortgage denial is a tough pill to swallow, but it is also a chance to take a step back and reassess. Start by understanding exactly why your application was denied.

You may have been denied for reasons completely outside of your control, such as inaccurate credit data. If that is the case, you have rights under the FCRA, and we help you enforce them.

Reznik Consumer Law helps consumers review their credit reports and protect their rights under federal law. If you believe inaccurate information caused your mortgage denial, contact us for a free case review.

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