Why lenders decline deals — and what to do about each one

A decline is rarely a surprise to the lender. It is usually something on their published sheet that the file did not meet — visible in advance, if anybody looked.

The nine reasons

1. Leverage. The loan is above their cap on cost, after-repair value or value. Fix: borrow less, put in more cash, or go to a lender with a higher cap.

This one is pure arithmetic, so it is entirely avoidable. A lender capping at 75% of a $500,000 after-repair value will lend $375,000 and not a dollar more. Ask for $390,000 and you are declined by a calculator, not a person — and the fix, asking for $375,000 and finding the extra $15,000, was available before you sent it.

2. Credit. Below their floor. Fix: a lender with a lower floor, a co-borrower, or time. "Just above the floor" often becomes "just below" when the real report arrives — leave room.

3. Experience. A first-timer on a product that wants three completed projects. Fix: a partner with a track record, or a lender who prices for first-timers at lower leverage.

4. State or property type. They simply do not lend there, or on that. Fix: a different lender. This is the most common silent decline and the easiest to avoid.

5. Seasoning. A bankruptcy or foreclosure too recent for their rules. Fix: wait, or find a lender with shorter requirements.

6. Coverage. The rent does not cover the payment by enough. Fix: a smaller loan, interest-only, a better rate, or a different product.

7. Liquidity and reserves. You can close but cannot survive a surprise — or cannot quite close. Fix: more cash, a documented gift, or a smaller deal.

8. Documentation. Incomplete, inconsistent, or unexplained. Fix: this is the one entirely within your control, and it is the most common of all.

9. The story. The numbers work but the plan does not hold together. Fix: a better plan, honestly explained.

The pattern

Of the nine, five are knowable before you apply — leverage, credit, state and property type, seasoning, and coverage — because they are published guidelines and arithmetic. One, documentation, is entirely yours. Only the last three involve judgement.

Which means most declines are avoidable by reading the guidelines and doing the arithmetic before sending the file.

What to do when it happens

Ask why, in one sentence. Lenders will usually tell you. "Below our credit floor" and "we don't lend on that property type in that state" are completely different problems with completely different fixes.

Then choose: fix the reason, or find the lender whose sheet does not contain it. Both are normal. What is not normal is sending the same file to five more lenders unchanged and hoping — that burns credit pulls and your reputation with the lenders you will need later.

Preventing it

• Check the property type and state against the lender's own guidelines first
• Leave room on credit rather than sitting on the line
• Do the leverage arithmetic at the lender's numbers, not your estimates
• Send a complete file with explanations already attached
• Say plainly what you are asking for and why it fits their guidelines

A file that asks a lender to do what they already do gets a yes. A file asking for an exception gets a maybe, slowly.

This is most of what a broker is for: knowing which sheet your deal fits before anyone's time is spent. Send us the deal.