Have you tried taking advantage of low refinance rates from today’s best mortgage lenders only to have your mortgage application denied? Unfortunately having a good payment history alone isn’t enough to get you qualified for mortgage refinancing. Depending on the reason your lender had for denying your mortgage refinance application there are steps you can take to get an approval. Here are several tips to help you get qualified for mortgage refinancing without paying unnecessary points or fees after having a lender deny your application.
Why Was Your Refinance Application Denied?
The most common reasons for having your mortgage refinance application denied are having poor credit or an insufficient loan-to-value ratio. For most denials it’s simply a lack of home equity. If you’re underwater or your debt-to-income ratio is too high refinancing is going to be more difficult, but not impossible thanks to government refinance programs like the Home Affordable Refinance Program (HARP).
If your bank denied your refinance application there are still options. Mortgage lenders are required to provide you a written explanation for the denail. Once you know what the issue is leading to your denial you can fix the problem and reapply.
Different mortgage lenders have different standards for underwriting home loans so if one lender denies your application and you’re a good candidate for mortgage refinancing you could find approval with another lender.
Fixing Denials For Poor Credit & Too Much Debt
If the problem is your credit score or your debt-to-income ratio the only thing you can do (unless you’re underwater) is to start paying down your debts. The quickest way to boost your credit score and lower your debt-to-income ratio (especially if it’s over 45%) is to pay down all of your credit cards below 30% of your credit limit.
If you have collection accounts or other negative information try and negotiate with the creditors to have the negative information removed. If your debt-to-income ratio is above 60% it’s not going to be worthwhile applying until your situation improves.
It is possible to qualify for mortgage refinancing with less than perfect credit or debt-to-income; however, you won’t like the refinance rates and fees lenders quote you. Invest the time cleaning up your credit reports and paying down your debts to qualify for the best refinance rates.
Help For Underwater Homeowners
If you’re having trouble refinancing because you owe more than your home is worth, hence the term “being underwater” and haven’t already looked into the government refinance program known as the Home Affordable Refinance Program (HARP), you’re in for good news.
Even if you applied for HARP refinancing when the program first came out and were denied the program was recently overhauled by President Obama removing many of the barriers to qualifying with HARP 2.0.
The only catch is that your home loan has to be owned by the government (Fannie Mae or Freddie Mac) and they must have it before June 1st, 2009. If you meet that requirement you only need to be making all of your payments on time. You’re allowed one late payment out of the last 12 BUT your most recent six payments need to have been made on time to qualify.
When the program first came out many underwater homeowners were not HARP eligible because there was a limit of 125% loan-to-value. This limit has since been removed and it doesn’t matter how underwater you are as long as your loan-to-value is greater than 80%.
If you don’t qualify for the Home Affordable Refinance Program because of the Fannie Mae/Freddie Mac requirement you still have options. Cash-in mortgage refinancing is a possibility depending how far underwater you are.
With a cash-in refinance transaction you’re bringing cash to the closing table to buy down your loan-to-value ratio to an acceptable value. If this isn’t possible because you don’t have the cash on hand or are too far underwater to make it work another option could be HARP 3.0.
HARP 3.0 is the next version of the program and is rumored to remove the Fannie Mae/Freddie Mac requirement opening the program up to anyone. The great thing about HARP is there is no credit check or appraisal required making the program very similar to an FHA streamline refinance.
If you are HARP eligible you might be frustrated to find your existing lender denies your application. This is because some lenders have their own program overlays, additional requirements enforced for their participation in the program.
Mortgage lender participation in the Home Affordable Refinance Program is voluntary so if you receive a HARP denial keep applying. You’re bound to find a lender without program overlays to approve your application.
FHA Mortgage Refinancing Is Another Option
If your mortgage refinance application is denied because of your credit consider an FHA home loan. The FHA has easier standards for credit and loan-to-value ratios that could get your mortgage refinance application approved. The downside of FHA home loans is that they require mortgage insurance which can add hundreds of dollars to your monthly payments.
If you’re an eligible veteran and haven’t already used your VA mortgage, what are you waiting for? The VA home loan is hands down the best mortgage product on the market today and does not require mortgage insurance.
Risks of Mortgage Refinance Denial
According to industry watchdogs homeowners who have their mortgage refinance application denied are more likely to face foreclosure or simply walk away from the home. If you’re struggling to make your payments and cannot qualify for any of the options or government refinance programs available contact your lender. There may be modification or payment plan options available that will help you avoid going through a foreclosure.
Refinance Rate Shopping Matters
One common mortgage mistake is overlooking lender fees. Many homeowners are so happy to get an approval they don’t bother questioning fees. If you pay too much at closing for things like the loan origination fee or discount points it can be difficult or even impossible to break even recouping your closing costs.
If you never break even recouping your out-of-pocket expenses you’ll be losing money no matter how attractive the refinance rates. Getting your mortgage refinance application approved is only the first step when it comes to getting the best deal.
Pay close attention to the fees found in section 800 of your Good Faith Estimate and make sure you’re comparing zero point quotes. Shopping for the lowest refinance rates AND fees will ensure you’re getting the maximum benefit from your new home loan.
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