Why Lenders Reject Your Refinansiering Application
You may have heard about the many reasons to refinance, but what are the good and bad reasons? First, refinancing can help you get better terms. If you have less than 20% equity in your home, you may need to pay private mortgage insurance. Finally, refinancing can eliminate your PMI payments.
You may want to refinance because interest rates are low, and you’d like to make payments on your mortgage faster. If you agree on adjustable-rate, refinancing allows you to take out more debt in the future.
The list of refinansieringslån benefits doesn’t end there. You can also get some extra cash for home improvement, buying a car, or going on a fancy vacation. Or you can simply put that surplus money in your savings account. But there are several reasons a refinance application might be turned down. You may have bad credit, are deeply in debt, or your income is difficult to verify.
Understanding why your application could be rejected can help you prepare for a successful refinance. If you haven’t figured out why you’ve been turned down, get an explanation from the lender. By knowing that, you’ll know which steps to can toward improving your chances of getting approved for a refinance.
You Have Bad Credit
Refinancing might be impossible if you have negative marks on your credit report. Generally, low credit scores make it difficult to get a mortgage. That’s particularly true at high LTVs, where lenders are taking a risk. A bad credit rating will prevent you from getting the lowest rates available. So before applying or accepting any refinance offer, try to fix the problems on your report.
Another reason a refinance application may be rejected is that the borrower has a low debt-to-income ratio. Your debt-to-income ratio must be within a certain threshold. For example, lenders commonly require a debt-to-income ratio of 40 percent.
Mortgage rates are rising, but they are still low compared to historical standards. If you are turned down for a refinance, address the problem with your current lender and apply later. Getting another ‘no’ shouldn’t make you give up hope. Instead, look for another lender while keeping up with payments on your current mortgage. That’s the best way to improve your credit score.
How to Improve Credit Score
Here’s what you can do to improve your credit score. First, make sure to pay off your credit card balances on time. Paying off your credit card debt can improve your debt-to-income ratio and credit score. Next, avoid late payments as they can hurt your chances. Finally, paying your initial mortgage on time won’t disqualify you.
If your lender cites your credit score as an issue, check whether its information is accurate and updated. Get a copy of your credit report from three credit bureaus and check all items. If you spot any mistakes, report them right away. The credit bureaus will investigate your dispute and make necessary corrections.
Not making enough money to meet your monthly mortgage payments is another common reason for refinancing to be denied. And if you can’t lower your debts, you can increase your earnings. Of course, that will lower your DTI, reflecting on your credit score, too. To improve your chances, find another source of income, pick up extra shifts, or get a side gig.
You’re in Debt Already
You may have heard that poor credit history can prevent a refinance loan approval. Lenders look at a borrower’s payment history, and your application may be denied if you don’t pay your bills on time. Likewise, if you have difficulties handling debts, that will be a red flag to lenders.
Make sure to only apply for loans you can pay back on time and keep your credit card balances low. Paying down your debt will also lower your debt-to-income ratio (DTI), which lenders find more appealing. Likewise, avoid taking on new debt or making large purchases, especially if you already have difficulties with current payments.
Income Is Hard to Verify
Bringing incorrect proof of income is a common mistake. Whether it is a W-2 from a previous year or a pay stub with outdated information, presenting the wrong income proof will lead to rejection. Yet, income verification is not a complicated process, especially if you have a steady job.
There are several ways to demonstrate your income when applying for a refinance loan. First, an official document that is issued by your employer is your paycheck or pay stub. This letter will state your employment dates, the hourly rate, compensation plan, and your current salary. Having these documents on hand will significantly assist the lender in determining your creditworthiness.
In addition to your salary, you may have received a gift or inheritance. Get a copy of a will, rental agreement, or any contract proving your additional income. …