Turned down for a refinance — now what?
Here are the options homeowners have after they've been denied a refi.
Unfortunately, a history of paying your mortgage on time isn't enough to qualify you for a refinance. In the current market, refinancing can be a rigorous process that requires a home appraisal, documentation of your income and assets, and a review of your credit history and your debt-to-income ratio. Falling short of a lender's requirements in just one of these areas could trigger a denial. (Bing: What is a debt-to-income ratio?)
"The No. 1 reason for a denial today is the lack of home equity," says Eric Mullis, branch manager and senior loan officer with Intercoastal Mortgage in McLean, Va. "Some other borrowers get turned down because their debt-to-income ratio is too high or their credit score is too low."
If you've been turned down for a refinance, you still have options. Because the law requires your lender to provide you with a written explanation of why your application was denied, you can either apply again with other lenders or fix the problem or problems that your lender identified and reapply when your situation has improved.
Joe Rogers, executive vice president of Wells Fargo Home Mortgage in Columbia, Md., says that because lenders have different qualification standards and offer different refinance programs, homeowners shouldn't hesitate to shop around after being denied a refinance. Other lenders will not be aware that you have been turned down, he says.
While Mullis agrees, he says borrowers need to be realistic about their financial situation after a refinance denial. "Someone with a debt-to-income ratio of 63% probably shouldn't even apply for a mortgage refinance," he says. "If your debt-to-income ratio is over 45% you may have a problem qualifying. We try to help as many people as we can, but sometimes if there's not enough equity or their credit problems are too severe, there's nothing we can do."
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In his experience, Mullis says that about 85% of the loans denied by one lender are virtually impossible to get approved by another.
If lost equity is your main concern, you have a few options. Depending upon how much equity you have lost, Mullis suggests paying down part of your principal balance. If you don't have the resources to do that, he suggests applying for a refinance through the Home Affordable Refinance Program, which has no underwater restrictions. Just remember, HARP is a voluntary program. Even if a lender does participate, it can institute any additional restrictions or qualification guidelines it sees fit.
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If your issues are related to your debt-to-income ratio or your credit, Rogers says you'll need to give yourself some time to pay down your debts and improve your credit score before you can reapply.
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Mullis says that borrowers denied a conventional refinance should consider a Federal Housing Administration loan because of that agency's more lenient credit-score and loan-to-value requirements. However, Mullis warns, the mortgage-insurance premiums on an FHA loan could subtract from your potential monthly savings.
Dangers of a denial
Stan Ross, chairman of the board of the University of Southern California Lusk Center for Real Estate in Los Angeles, says that homeowners who are denied a refinance are more likely to default on their loan or walk away, particularly if they have little or no home equity. If you're struggling to pay your mortgage, Ross says you need to reach out to your lender or servicer right away to find the right strategy to keep you in your home.
Pressure from government regulators has led many mortgage lenders to overcompensate and deny too many loans, Ross says. "It's almost like these lenders are shooting themselves in the foot, though, because they would be better off if they would be less restrictive."
Rather than give up after your refinance application is denied, experts recommend that you seek experienced mortgage lenders at other financial institutions, such as a direct mortgage lender, a credit union or a community bank.
"Some community banks make their own portfolio loans, which could be available to you, especially if you have been a long-term customer," Rogers says. "At Wells Fargo, because we are the largest mortgage lender, we try to provide as many loan options as possible for borrowers."
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Mullis says that the best way to prevent any refi surprises is to be prepared before you apply. Borrowers must get an accurate estimation of their home value, credit score and debt-to-income ratio, as well as gather all the necessary paperwork before visiting a lender.
If you are in a Fannie Mae of Freddie Mac loan and have at least a 620 credit score and have been turned down by your lender from doing a HARP loan, you most likely have been wrongfully turned down as lenders are illegally turnig down homeowners becase they dont want to take on the risk.
Please let me know the reason for your denial and I will identify the proper lender who should be able to help.
The HARP Resource Center
The article mentions "portfolio loans" that small community banks or credit unions sometimes offer.
Yes, it is factually true, but not always the solution the borrower seeks.
In my area, the credit unions offer smoking deals on 7 and 10 amortized home loans. Some even have no closing cost options. The catch is that one, the payment is higher on short terms and in my area, the loan to value restrictions is usually 70% so you need substantial equity. For the borrower who cant afford his mortgage or is upside down this is not a solution.
Also, loans that are not being sold to Fannie Mae, Freddie Mac, or GNMA are probably going to have a higher underwriting standard. Usually a lower debt to income, better credit history, and full income documentation are the norm.
F Wells Fargo. I was a customer for 35 years, kept my checking and savings there, and an $850K mortgage. When I lost my job and the home market was hitting bottom, I couldn't get any accomodations from the bank. I had to sell my home and take $30K to the closingo preserve my credit and make good on the mortgage obligation. I lost the $300K down payment I'd made on the loan, and Wells Fargo got all their money. As soon as I closed, they even sent me a note letting me know that because I no longer carried enough savings and mortgages with their company, that they reduced my line of credit from $15K to $3000. Less than either of my young adult children. One with a part time job and living rent free with us, and one going to college on our dime. BOTH have a bigger line of credit from Wells than I do, and I have a CS of 780. Now that I'm employed, I get to start over saving money and regaining two years of employment before they will talk to me about a loan. The good news is that I WILL NEVER borrow any money from those A holes again.
Getting a loan is a pretty straightforward process. You have to have good credit history, good collateral (equity in the house), and demonstrate a capacity to repay the loan. If you don't have all three, then you are going to have a problem getting a loan.
Now there are some special programs that address the lack of equity problem, Harp, FHA streamline, and the VA streamline. There are no programs for anyone without good credit and a capacity to repay.
This used to be the standard, called the three "Cs" of lending (credit, collateral, and capacity to repay), but we got away from those standards that had worked for decades in the name of expanding home ownership. It backfired on us in a big way and now we are back to the old standards. It will remain this way for a long time. Its the new reality in lending.
Best bet is to get your finances in order before applying, find someone who knows what it takes to get a loan, and finally don't blame someone else for your situation if you cant qualify.
still waiting on the zombie apokolypse
Bank of America B L O W S !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
HARP worked for us. HARP does not require an appraisal.
If the rate is lower take the lower payments.