5 Reasons Why You Were Denied a Mortgage Refinance - Baltimore Lender

Mortgage refinancing makes it possible for people to pay off an old loan and take out a new one with more favorable terms, such as lower interest rates, lower fees, or a longer term. It?s very frustrating to apply for a refinance and be denied, but many people have been through this experience. Here are the top five culprits:

1. Your FICO Score Was Too Low

Most lenders today don?t want to touch anyone with a credit score, or FICO score, of less than 620. If your FICO is lower than that, you will have to rebuild your credit before you qualify for refinancing. A few quick things you can do to improve your credit score include getting regular copies of your credit reports from all three credit bureaus and immediately challenging any inaccuracies, paying your bills on time, and paying down any debt you owe.

2. You Had Previous Mortgage Delinquencies

If you have had previous mortgage delinquencies, you may have trouble finding a lender willing to work with you on a refinance. They fear that if you defaulted on one mortgage, you will also default on this one. The rule of thumb used by the FHA is that they will not approve you for financing again for three years after a default ? and during those three years, your credit must be absolutely perfect.

3. Your Debt to Income Ratio was not Acceptable

Again per FHA guidelines, your monthly payment on a home should equal no more than 31% of your gross monthly income. All of your debts together, including your mortgage, should total no more than 43% of your gross monthly income. If your debt to income ratio is too high, you will need to pay off some of the money you owe before lenders are willing to work with you.

4. You Do Not Have Enough Equity in Your Home

Perhaps your first mortgage allowed you to make a series of ?interest only? payments. These payments took care of the interest each month, but did not allow you to start paying off the home. Until you have a good share of equity in the home, around 20% at least, you will not be able to refinance.

5. The Value of Your Home is Declining

If your home is in a decaying neighborhood where property values are plummeting, most lenders will not refinance you. Why risk their money when the only thing they have for collateral is a home that may soon be worth next to nothing. Other than working with your neighbors to try to revitalize the neighborhood, there isn?t much you can about falling property values. They are one of the risks of real estate investment.

If you have been denied a mortgage refinance and are having a lot of trouble making your monthly mortgage payments, contact your lender and ask about a loan modification. Rather than taking out a new loan, this arrangement permanently modifies the terms on the original loan by lowering interest, extending the life of the loan, or making other arrangements to help keep you out of foreclosure.

Source: http://mybaltimorelender.com/5-reasons-why-you-were-denied-a-mortgage-refinance/

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