So you've found the house of your dreams. The price is right, the buyer accepts your offer and your lender has already prequalified you for a mortgage of that size. So you submit your paperwork, the lender takes it under consideration and then after a few weeks - rejects the sale.

So what happened? Getting that close to a sale, only to have it rejected by the lender, can feel like a punch in the gut. But it's an increasingly common occurrence these days, as lenders take a more conservative approach to home loans and cast a wary eye on properties that they fear might not be up to snuff.

If your loan application for a home purchase is rejected after everything appeared to be in order, it could be due to any of several reasons. The bank may have decided that you're a bigger credit risk than they initially thought. But another reason, one that's becoming more common these days, is that they may have found some reason to be wary of the appraisal and the home itself.

Appraising the true value of a home is a not an exact science, and it's become even more challenging these days with housing prices still in flux. Particularly if the house you're looking at is atypical in some way, perhaps older or smaller than the surrounding neighborhood, or if there are few truly comparable sales nearby within the past year, a lender may have doubts about its true value, even if the appraisal supports the sales price.

So what can you do if the lender just doesn't think the house will support the mortgage you're seeking? Well, the first thing you should do is think again - if the bank is wary of this property, is it a home you really want to own? Will it be a property you might have trouble selling a few years down the road? Even if the appraisal came in ok, the bank's reluctance may be a sign that you'd actually be overpaying for the house - think of it as a red flag.

You can also order another appraisal, to see if it will support the first and hopefully persuade the bank to reconsider. Or, if it comes in lower, the seller might be persuading to lower the price. In the current housing market, many home sellers have not come to terms with just how much their home has actually declined in value - they may need to come down even below what you offered before a lender will consider it appropriately priced and be willing to write a mortgage for it. However, bear in mind that if you do order a second appraisal, you're the one who will have to pay for it - and there's no guarantee of results.

But then, suppose you've been shopping around, the house is a perfect fit for you and you know you can't get anything comparable in the area at that price? Then what? You might consider looking around for a different lender. While large lenders can offer very attractive rates, they also tend to be less flexible in their lending criteria - they have to take a formulaic approach to process as many loan applications as they do. Small, local banks and credit unions are often more flexible in their lending criteria and a have a better understanding of area housing markets than the big banks do. A mortgage broker can also be helpful in assessing loan possibilities from a large number of lenders and find one that will fit your particular situation.

You may end up paying a slightly higher rate with a broker or "boutique" lender than you would at a large bank, but you're getting a special service in return - a mortgage for that unique property that's exactly what you wanted. And that might be worth paying a little extra for.

Published on November 5, 2009