Mortgage Application Denied? Here’s How You Can Still Buy a Home

Getting a mortgage denial is discouraging, but it’s far from the end of your homeownership journey. In fact, you’re not alone. The good news is that many of those would-be buyers did eventually get approved by addressing the issues or finding more flexible financing.

This guide will walk you through what to do if your mortgage was denied but you still want to buy a home. We’ll cover common reasons for denials,  how to solve those issues, explore why working with a mortgage broker (instead of just a bank) can unlock new options to help you become a homeowner, and learn about several non-QM mortgage options (alternative loan programs) that can turn a “no” into a “yes.” 

Denials Happen – But They’re Not the End of the Road

 Lenders denied almost 20% of home purchase loan applications in 2024. The top reasons are typically credit issues or high debt-to-income ratios, but those are issues you can work on or work around. The key is to understand why you were denied, then take action. Maybe your credit score was below the lender’s cutoff, or your income was hard to verify. Perhaps your bank felt your savings were too low. Whatever the reason, remember: one lender’s denial doesn’t mean you can never get a mortgage. Often, there’s a fix – either by improving your finances or by finding a lender with more flexible guidelines.

Importantly, a denial isn’t a judgment on you as a person; it’s a judgment on the loan application details. And the good news? Loan details can change depending on what lender you decide to work with. Credit scores can be raised. Debts can be paid down. Alternative documentation can be provided. And sometimes, simply applying elsewhere or through a different channel makes all the difference.

But here’s what most borrowers don’t realize: sometimes the issue isn’t you—it’s your lender. Corner banks, national direct lenders, and builder-affiliated lenders often impose something called overlays—additional rules they tack on to standard loan guidelines. Think of overlays as a lender’s “house rules.” Maybe FHA says you can qualify with a 580 credit score, but your lender insists on a 640. Or perhaps a self-employed borrower qualifies with one year of business history under standard guidelines, but your lender demands two years. Or the loan program permits a 50% debt-to-income ratio, but your bank caps it at 43%—which means you can’t qualify for the loan amount you actually can afford.

These overlays are designed to reduce risk for the lender, but they often block otherwise qualified borrowers. You might meet every requirement set by Fannie Mae, Freddie Mac, or FHA—but still get turned down because the lender added its own stricter rules.

This is exactly where a mortgage broker changes the game. Brokers understand which lenders keep overlays to a minimum and which ones offer true flexibility. They know how to strategically route your application to a lender most likely to say yes—without unnecessary roadblocks.

Common Reasons Mortgage Applications Get Denied—and What to Do About It

Understanding why mortgages get denied will help you plot your next move—and more importantly, how to overcome the issue. Here are the most common reasons for mortgage rejection, plus smart solutions that can get you back on track:

• Inconsistent or Unverifiable Income: This is a common hurdle for self-employed people and gig workers, but it doesn’t have to be a dealbreaker. Work with a mortgage broker who can qualify you using bank statements, profit-and-loss statements, or even a CPA letter.

• High Debt-to-Income Ratio (DTI): Traditional lenders may cap your DTI at 43%, but non-QM loans can go higher—some allow up to 50% or more. A broker can help you find lenders that allow expanded DTI based on strong compensating factors.

• Credit Score or History Issues: A lower credit score doesn’t always mean denial. Certain programs accept scores in the 500s, and some lenders will manually underwrite files with credit hiccups. This is the hardest puzzle to solve. Some borrowers are able to boost their credit scores in less than 30 days with a few quick changes to the way they pay off their debts, but if you have late payments or collections, you may not have a path forward.

• Lack of Savings or Reserves: If your reserves are low, a broker may help you qualify with gift funds, retirement account reserves, or programs that have reduced reserve requirements.

• Large Unexplained Deposits or Document Issues: Lenders must source every dollar. If your money came from a bonus, crypto sale, or a gift, make sure it's properly documented. A good broker will guide you on how to paper-trail deposits the right way.

• Property or Appraisal Problems: While a low appraisal might kill a deal with a traditional lender, it isn't that big of a deal when you work with a broker. Brokers are regularly able to order a second appraisal. At LendFriend, we've ordered a second appraisal numerous times and that second appraisal has never come in low (knock on wood).

Every one of these issues has a potential solution or alternative path—especially when you work with a broker who knows how to navigate around them.

Don’t Panic – Pivot: Try a Mortgage Broker for a Second Opinion

Before you give up or delay your homebuying plans, consider how the right broker can offer quick, effective workarounds to common issues.

The key is knowing where to look—and that’s where mortgage brokers thrive. Brokers can shop HUNDREDS of different lenders to find one that fits your situation. Instead of working with one lender, work with a broker who can place you with the right solution.

How do brokers do that? Mortgage brokers have access to niche loan programs that big banks often don’t offer at all, such as bank statement mortgages, asset depletion loans, or DSCR loans. These are specialized solutions designed for borrowers who fall outside the conventional boxes.

The bottom line: one lender’s “no” can be another lender’s “yes.”

One of the best moves after a denial is to get a second opinion on your mortgage options. Working with a mortgage broker can offer dramatically more flexibility than a retail bank, builder’s lender, or big-box online lender. Brokers can shop dozens of different lenders to find one that fits your situation.

More importantly, brokers have access to niche loan programs that big banks often don’t offer at all, such as bank statement mortgages, asset depletion loans, or DSCR loans. These are specialized solutions designed for borrowers who fall outside the conventional boxes.

The bottom line: one lender’s “no” can be another lender’s “yes.”

When Conventional Loans Don’t Work: Meet the Non-QM Mortgage

Non-QM loans – short for non-qualified mortgages – are loans that fall outside strict government guidelines. They’re still perfectly legitimate financing options for borrowers who need a different approach.

Non-QM lenders verify your ability to repay using alternative methods – like bank statements, asset depletion, or a CPA-prepared profit and loss statement. These loans allow for higher DTI ratios, credit flexibility, and unique income documentation.

Non-QM loans give underwriters the ability to make common-sense exceptions.

Exploring Non-QM Mortgage Options to Turn “No” into “Yes”

When a conventional or FHA loan isn’t doable, mortgage brokers can offer a range of non-QM mortgage options:

Bank Statement Loans

If you’re self-employed and deduct heavily on taxes, traditional lenders may say you don't show enough income to qualify. Bank statement loans flip the script. Instead of looking at your tax returns, these loans let you qualify based on your deposits, giving you credit for the actual money coming in. It’s a smart solution for entrepreneurs, freelancers, and 1099 earners who run lean on paper but are thriving in real life.

Example: One borrower in North Carolina was running a growing marketing agency. His local bank kept stringing him along, asking for endless documents – multiple years of tax returns, CPA letters – and still wouldn’t approve him because his tax deductions made his income look low. He was about to give up. At LendFriend, we stepped in and approved him on a 12-month bank statement loan, qualifying him based on deposits, not tax forms. We cut the red tape and got him into his new home with a loan the bank couldn’t match. This is a classic case of turning a “no” into a “yes” by using the right program.

Asset Depletion Loans

If you’re asset-rich but don’t have steady monthly income—think retirees, business sellers, or high-net-worth individuals—an asset depletion loan might be your best bet. These loans let lenders calculate monthly income based on your asset value, turning your portfolio into qualifying income without requiring you to liquidate anything.

DSCR Loans

If you're buying a rental property and your personal income doesn't qualify you, a DSCR loan is a game-changer. These loans look at one thing: does the rent cover the mortgage? If the property cash flow works, you qualify—no personal income documents required. Perfect for investors scaling their portfolios.

Crypto-Backed Mortgages

If a big chunk of your wealth is tied up in crypto, you don’t need to sell it to buy a home. With a crypto-backed mortgage, you can leverage your crypto holdings, whether it's bitcoin or ethereum without liquidating them, avoiding taxes and staying invested. Some lenders will even count crypto as qualifying income or consider it as part of your reserves.

A real-life case from a LendFriend client: An investor in Highland Park had millions in Bitcoin but couldn’t get approved by any major bank – those lenders either told him to liquidate his crypto into cash (which he didn’t want to do, due to taxes and losing upside) or they simply didn’t count it at all, rendering him “income-less” in their eyes. We structured a crypto-backed mortgage using asset-depletion guidelines on his crypto account. The client was able to buy a $3 million home while keeping his crypto invested and avoiding a taxable event. In about three weeks, he closed on the home, with a $2M loan, without having to show any W-2 income or sell any coins.

Turning “No” into “Yes”: How LendFriend Can Help You Move Forward

A mortgage denial is not the end of the road. With the right plan and broker, you can still become a homeowner.

LendFriend is a licensed mortgage broker with experience in tough files. We work with first-time buyers, self-employed entrepreneurs, real estate investors, and anyone with a unique financial profile.

What to Do Next

1. Find out exactly why you were denied.

2. Address any fixable issues.

3. Talk to a mortgage broker (like LendFriend).

4. Stay positive and open to creative solutions.

At LendFriend, we believe homeownership should be within reach for financially responsible people. Whether you need to go non-QM or just rethink your strategy, we’ll help you find a loan that fits you.

Remember: “No” in the mortgage world often just means “not this way.” There is always another way.

Give us a call at 512.881.5099 or reach out to us here. We’d love to be your partner in the process.