What To Do When Your Mortgage Refinance Application Is Denied

Are you one of the millions of homeowners in the United States that had your mortgage refinance application denied? If you are, don’t take it personally, you’re in good company. Fortunately, there are steps you can take to get approved in most situations. Here are several tips for turning that denied refinance application into an approval with today’s best mortgage lenders.

Common Reasons for Mortgage Refinance Denials

There are a number of reasons that lenders deny applications for mortgage refinancing. Lack of home equity is one of the most common reasons for having your refinance application denied. You don’t have to be fully underwater to be denied, just low on equity. If you’re not underwater but need to improve your loan-to-value ratio, consider cash-in mortgage refinancing.

Cash-in refinancing means you’re bringing cash to the table to improve your loan-to-value ratio to get your mortgage refinance application approved. I don’t recommend this if you’re fully underwater or will have to pay a significant amount as you could qualify for the Home Affordable Refinance Program (HARP 2.0) in these cases. If you only have to pay $10,000 to get approved for a conventional home loan cash-in refinancing could be a worthwhile investment.

Consider The Home Affordable Refinance Program

If your loan-to-value ratio is greater than 80 percent you could qualify for underwater refinancing with HARP 2.0. The program was recently overhauled by President Obama so if you were denied when the program was first introduced you should reapply. Under HARP 2.0 there’s no limit to how underwater you can be and there are more incentives for lenders to approve your HARP application. For many homeowners this is a more attractive alternative to cash-in refinancing.

The basic requirement for HARP is that Fannie Mae or Freddie Mac purchased your mortgage prior to June 1st 2009 and you cannot have any late payments in the last six months. Additionally, you must have made 11 of your last 12 mortgage payments on time. If you meet these basic requirements you are HARP eligible; however, many lenders enforce their own program overlays. Overlays are limits on things like minimum credit scores and maximum loan-to-value ratios to get approved. Not every mortgage lender enforces overlays and every lender’s rules are different.

FHA or VHA Mortgage Refinancing Options

If you’re low on equity consider an FHA home loan. FHA refinance rates are competitive compared to conventional mortgage rates. The downside to an FHA home loan is that you’ll be required to pay mortgage insurance which will raise your monthly payments. VA home loans on the other hand do not require mortgage insurance so if you’re a veteran don’t overlook your VA mortgage eligibility. VA home loans are the single best option available on the market today.

Bad Credit Denial? Improve Your Credit Score

If your mortgage refinance application is denied due to credit your only option is to improve your credit score. The easiest way to do this is to pay down the balances on your credit cards below 30% of your available limit. Make sure you’re making all of your payments on time and work with creditors to remove negative information from your credit reports.

If you haven’t checked your credit reports for mistakes now would be a good time to do this. You can get free copies of all three credit reports by visiting the website AnnualCreditReport.com.

Keep Applying With Different Mortgage Lenders

Mortgage lenders have different requirements for underwriting so if one denies your application there’s a good chance another one will approve you. Shopping around for the lowest fees is important as closing costs can vary significantly from one mortgage lender to the next.

The biggest lenders like Bank of America or Wells Fargo don’t always have the lowest refinance rates and fees. Smaller lenders or credit unions might approve your mortgage refinance application when the lending giants turn you down.

One last thing to consider is enlisting the help of a mortgage broker. Your broker has access to programs the average homeowner would never know about and have experience getting applications approved. Just be careful not to overpay the broker’s loan origination fee as paying too much could make refinancing an losing proposition.