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.

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FHA Short Refinance for Underwater Mortgage Loans

If you’re a homeowner struggling with an underwater mortgage loan there is good news today regarding the FHA Short Refinance program. The Department of Housing and Urban Development (HUD) released a new program that will allow you to get a government insured mortgage loan, even if you’re underwater. Here are the basics of mortgage refinancing with this new program and some of the advantages and disadvantages inherent to government-backed home loans to help you get right-side-up in your underwater home loan.

This new program announced by the government today is called the FHA Short Refinance and to be eligible you must be up-to-date on your existing mortgage payments and of course be underwater, meaning you owe more than your home is worth. There is a catch however; your existing mortgage lender must agree to discount the balance you owe on your current home loan by a minimum of ten percent. Whether lenders will agree to discount home loans in this manner remains to be seen.

Help for Underwater Mortgage Loans

The Federal Housing Administration commissioner called the program a lifeline for families who are current on their payments but are suffering a hardship due to declining property values. The FHA short refinance loan is another tool the government is claiming will help homeowners in the United States combat negative equity by refinancing with safe, secure government backed home loans. The FHA short refinance program will begin assisting homeowners in refinancing their underwater mortgage loans September 7th, 2010.

FHA Short Refinance Requirements

In order to be eligible for refinancing your underwater mortgage loan with an FHA short refinance you must qualify for the program. This means your loan must be underwater, meaning you have negative equity, or owe more on your home loan than your property is worth. Additionally, you must be caught up on your mortgage payments. You must qualify for the program guidelines and occupy the home as your primary residence. That catch I was talking about earlier where your existing lender must agree to discount at least 10% of your current home loan balance means that according to program guidelines your new home loan must not have a higher balance than 97.75% of your home’s value (loan-to-value ratio) after the write-off.

Loan-to-value can be confusing for many homeowners; however, the gist of the FHA short refinance is that your lender must agree to take at least a 10% loss on your existing home loan. This loss shouldered by your mortgage lender essentially makes you right side up in your underwater mortgage loan. This program is going to be great for underwater homeowners that agree to take this loss…but what if yours won’t discount your existing mortgage balance by 10%?

FHA Mortgage Loan Disadvantages

There are some disadvantages to government backed home loans. The biggest disadvantage has a direct impact on your wallet. All loans backed by the Federal Housing Administration require that you carry Private Mortgage Insurance (PMI) on the loan. While this mortgage insurance does absolutely nothing to protect you as the homeowner, it does protect your mortgage lender from certain types of losses if you foreclose. Private Mortgage Insurance can cost you as much as $200 a month, even more in some cases, driving up your mortgage payments much higher than they would be without this insurance. Another disadvantage to government insured home loans is that many homeowners get a false sense of security when it comes to junk fees and unnecessary markup. The fact that your mortgage is an FHA short refinance does nothing to protect you from Yield Spread Premium or other junk fees. The rule of buyer beware when it comes to home loans always applies.

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Can I Refinance My Mortgage If My Home Is Underwater or Upside Down?

When the Real Estate bubble burst many homeowners particularly in parts of the country like California and Florida saw their property values plummet. If you were one of these homeowners you may have gone from having as much as $50,000 in equity to being under water.

The burning question for homeowners who find themselves in this situation is “Can I refinance when I owe more on my existing mortgage than my home is currently worth?” Here are several tips to help you answer this question for yourself.

When you are upside down or underwater with your mortgage loan as the terms suggest, you owe more than your home is worth. Some online lenders will tell you that you’re underwater even if you have not had a recent appraisal of your home’s value based solely on the geographic location of your property.

If the last appraisal of your home valued the property at $350,000 but your lender is telling you it’s now worth $260,000 you can still easily refinance if your mortgage is less than $200,000. The problem comes when you owe more than the property is worth, meaning you have “negative equity” in your home.

The straight answer to the question of mortgage refinancing when you’re underwater is possibly; however, there may be other options available to you. This may not be the answer you want to hear and for this I apologize but it is important to know your options when you are upside down in your mortgage loan. 100% mortgage loans are no longer available in today’s marketplace so unless you have the cash on hand to pay your mortgage down below the value of your home refinancing could be a difficult option.

If you don’t have the cash on hand there are ways to get it. Hard money lenders are one such method. A “hard money lender” is a private investor lending money to homeowners who are either upside down in their homes or are facing foreclosure. You have to be careful when dealing with private investors and observe the rule of “buyers beware” as there may be very little regulation of hard money lenders in your State.

Click for Instant Online Access

Check out my free Underground Mortgage Refinancing Videos and you’ll discover how easy it is to save thousands of dollars getting the best refinance rates without paying unnecessary markup or lender junk fees.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Free Underground Mortgage Videos

Here’s a sample to get you quickly on the path to mortgage bliss.