Refinancing your mortgage should be decided based on your unique financial situation, even though low mortgage interest rates may encourage many homeowners to reorganize their finances. This week’s mortgage rates should not be the deciding factor in whether or not you refinance.
Refinancing your mortgage can be a great way to save money on your monthly payments, but it’s not always easy to qualify In fact, there are a number of reasons why your refinance could be denied.
Here are the top 6 reasons why your mortgage refinance could be denied:
1. You have too much debt.
One of the most common reasons for a refinance denial is having too much debt. Lenders want to make sure that you can afford to repay your new loan so they will look at your debt-to-income ratio (DTI). This ratio compares your monthly debt payments to your gross monthly income. If your DTI is too high your refinance could be denied.
2. You have bad credit.
Your credit score is another important factor that lenders consider when approving a refinance. If your credit score is low, you may not qualify for the best interest rates or you may be denied altogether.
3. Your home value has dropped.
The value of your home is also important for refinancing. Your home may not have enough equity to be eligible for a refinance if its value has decreased since you purchased it. The difference between your home’s value and the amount you owe on your mortgage is called equity.
4. Your application was incomplete.
Make sure you have all the required documentation before you submit your refinance application. This includes your pay stubs, tax returns, and bank statements. If your application is incomplete, your lender may deny your refinance.
5. Your lender can’t verify your information.
Lenders will verify your income and employment history before approving a refinance. If they can’t verify this information, your refinance could be denied.
6. You don’t have enough cash.
You may need to bring some cash to closing to cover the costs of refinancing. If you don’t have enough cash, your lender may deny your refinance.
What to Do If Your Refinance Is Denied
If your refinance is denied, don’t give up. There are a few things you can do to improve your chances of getting approved in the future:
- Pay down your debt. This will lower your DTI and make you a more attractive borrower.
- Improve your credit score. Pay your bills on time and keep your credit utilization low.
- Wait for your home value to increase. This will give you more equity and make you a better candidate for a refinance.
- Get a co-signer. If you have a co-signer with good credit, you may be able to qualify for a refinance even if your credit score is low.
Refinancing your mortgage can be a great way to save money, but it’s not always easy to qualify. If your refinance is denied, don’t give up. There are a few things you can do to improve your chances of getting approved in the future.
Frequently Asked Questions
Q: What is the most common reason for a refinance denial?
A: The most common reason for a refinance denial is having too much debt.
Q: What can I do to improve my chances of getting approved for a refinance?
A: You can improve your chances of getting approved for a refinance by paying down your debt, improving your credit score, waiting for your home value to increase, or getting a co-signer.
Q: What are the benefits of refinancing my mortgage?
A: The benefits of refinancing your mortgage include lower monthly payments, a shorter loan term, and the ability to cash out some of your home equity.
Additional Resources
- LendingTree: 6 Reasons a Refinance Can Be Denied
- Investopedia: 9 Things to Know Before You Refinance Your Mortgage
Disclaimer
This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any decisions about your mortgage.
Your Breakeven Point
When deciding whether to refinance, it’s crucial to determine the breakeven point, which is the monthly savings that equals the refinancing costs. After that point, your monthly savings are completely yours.
It will take 20 months to recover your costs, for instance, if your refinance costs $2,000 and you save $100 a month over your previous loan. A refinance in this case might not be wise if you plan to move or sell your house within the next two years.
Your Credit Score
Youll need to know your current credit score. Mortgage refinance lenders have tightened their standards for loan approvals in recent years. Some customers might be shocked to hear that they don’t always qualify for the best interest rates, even if they have excellent credit.
To be eligible for the lowest mortgage interest rates, borrowers typically need to have a credit score of 750 or above according to lenders. Lower score borrowers can still get new loans, but they might have to pay more in fees or interest.