Lenders turn down mortgage refinance loans for different reasons. Maybe a bank denied your refinance request because you don’t have enough income or your current mortgage is underwater. Even if your credit is good, more restrictive underwriting requirements can make it tougher to refinance your mortgage, points out the Mortgage Professor. You can still have a good chance of getting a lender to reconsider your loan application if you know what steps to take.
The law states that a lender must give you the reason why your request for a mortgage refinance is denied. Whether your home appraisal falls short, your credit score is too low, or you are asking for too much money, you can’t do anything about it until you know what’s wrong. Under the Fair Credit Reporting Act, when your credit history is the problem, the adverse-action notice you receive from the bank must name the credit-reporting bureau from which it received the information. Although the notice can be oral, written or electronic, the lender must provide the credit bureau’s address and toll-free telephone number.
Pay More Interest
A lender may still decide to give you a loan even if you don’t qualify for a low rate. The hitch is that unless you ask for less money, a bank can charge you a higher interest rate and maybe some points to get the loan. Lenders that provide mortgage refinance loans often make you pay a percentage of the loan amount up front. A point, which equals 1 percent of the amount you borrow, is prepaid interest that lowers the rate you pay over the loan term. Generally, to get the best rate without paying points, you need a credit score of 740, reports Bankrate.
Try Different Lenders
Lender requirements vary, so if one lender rejects your application for a refinance loan, try somewhere else. Eligibility requirements often are less stringent for credit unions and local community banks. A refinance loan insured by the Federal Housing Administration is another option. If your mortgage is already FHA-insured, you may qualify for an FHA streamline refinance with a lower credit score and no appraisal, but you can’t take cash out or be behind in your current mortgage. In addition, refinancing your existing mortgage loan must lower your monthly principal and interest payments.
If you still want to refinance, work on improving your credit score or saving more toward a down payment so that you can try reapplying for a loan later. Maybe you only need to boost your credit score by a few points. In that case, your lender may use rapid rescoring -- a process that can get updated information into your credit file quickly. For example, if you spot errors on your credit report, it could take weeks or even months to get the credit bureaus to correct the mistakes and recalculate your score. But if your lender uses a rapid rescoring service, your credit report is updated within days, says Bankrate.
- Mortgage Professor: Why Are More Loans Not Being Refinanced?
- Federal Trade Commission Bureau of Consumer Protection: Using Consumer Reports for Credit Decisions -- What to Know About Adverse Action and Risk-Based Pricing Notices
- Bankrate: What to Do When Your Mortgage Is Rejected
- HUD.gov: Streamline Your FHA Mortgage
- Bankrate: Tips for Boosting Your Credit Score
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