What To Do If Your Mortgage Refinance Application Is Rejected

Just because a lender has turned down your application for mortgage refinance, you don't have to lose heart. In fact, by fixing the problems and improving your finances, you should be able to get refinance from another lender.

When a lender rejects your mortgage refinance application, the first thing you need to do is to find out why it was rejected. Fix those problems and apply again.

The lender can refuse your refinance application for several reasons. Here are the top five reasons:

-The current value of your home is less than the amount you owe on your mortgage.

-Your credit score may be less than satisfactory.

-You cannot prove your income.

-You have listed your home for sale.

-The lender suspects that you are not earning enough to cover your expenses.

While some of these issues can be fixed quickly, others may take time.

You are underwater

If you are underwater (i.e. the value of your home is less than the money you owe the lender) you have basically three options:

Tell your lender that you will make a down payment. So, for example, if the current value of your home is 90,000 USD and you owe 100,000 USD on your mortgage, you will have to make a down payment of $10,000 to cover the difference. In addition to this, you have to bring the customary down payment. Most lenders insist that the buyer should contribute at least 5% of the value of the property.

Make sure that the appraisal is accurate. All information (square footage, number of bedrooms, bath) in the appraisal should be correct. If there are amenities like a deck or a patio, a large lot or energy efficiency features, you need to ensure that they are properly valued.

The HARP refinance program helps homeowners who are underwater on their mortgage. See if you are eligible for that.

Your credit score isn't satisfactory

Lenders have increased the minimum credit score required for getting a mortgage. Your credit score may not have changed in the last few years; however, it may not be high enough to refinance your current mortgage.

If your credit score is lower than 620, getting a refinance is difficult. In fact, some lenders only consider borrowers who have a credit score of 660.If you have a credit score of 740 or higher, you will get the best possible rates.

How to increase your credit score

Pay your bills before they are due. You should also pay off your credit card debts.

Consider getting an FHA loan. These loans require larger down payments and may also have higher interest rates. However, they take borrowers with a low credit score.

You can't document your income

Lenders will ask you to prove every source of your income. In order to ensure that every source is considered, you should mention all sources of your income on your tax return. You will need to submit your income history of at least two years to refinance.

You don't earn enough

Lenders compare your monthly income and monthly expenses to determine your debt-to-income ratio. You can increase your ratio by reducing your expenses or increasing your earnings. You can perhaps borrow money from your relatives to pay off your debts. Or you should consider getting an FHA loan. An FHA loan will consider the incomes of other family members who are ready to co-sign the mortgage.

You have listed your home

If your property is already on the market getting a refinance is nearly impossible. However, many lenders will consider your application if you are ready to take the property off the market. Some lenders will make you wait for 60 days, even after taking the home off the market. If you have already listed your home for sale, you will probably want to find a lender who doesn't wait for 60 days.

If none of these strategies work, you should wait until the refinance boom ends. When lenders aren't all that busy, they are more likely to entertain your application.