Reasons Why Borrowers Can’t Refinance Their Mortgage
When mortgage interest rates are low, it’s incredibly tempting to refinance, and for good reason. Refinancing can, of course, save you plenty of money if it’s done correctly. For homeowners struggling with their current mortgage, the prospect of lower interest rates, consolidation, etc. can seem very attractive.
Refinancing your mortgage with rates that are favorable can revolutionize your financial situation for the better. Unfortunately, restrictions on refinancing are more rigid than they used to be. Lenders have been burned, and they’re generally treading as cautiously as they can.
If you’re considering a refinance, you’ll want to take a look at common reasons borrowers are rejected. Here are a few of them:
Your Credit Score When It Comes to Refinancing Your Home Mortgage
Though you were likely expecting this as one of the major factors, the extent to which debt can impact your credit score is often very surprising. Even minor medical debt can prove a problem. Scores below 620 are seen as a substantial risk.
If your credit isn’t in good shape, you could be slammed with big closing costs. Even responsible credit card owners may be impacted by, for instance, a bank suddenly dropping a card’s credit limit, effecting the card’s utilization rate. If you are looking to refinance, it would be prudent to make a close examination of your credit scores.
Loan-To-Value Ratio for Your Home Loan
Your Loan-To-Value (LTV) ratio is also a key factor to consider. Your LTV is your loan amount divided by your purchase price/appraised value. If you borrowed during a period where lenders were offering little-to-no down payments on their loans, you may find that your LTV ratio makes it very difficult to refinance your mortgage. When rates of interest were low, a home’s value was often higher than what we see today,
Since your LTV ratio will be one of the more important factors in your application, you may want to speak with a loan adviser about your individual situation. Even if your LTV is not ideal for the terms you want, you likely have other options to consider, including a number of government-sponsored programs that deal specifically with the LTV situation created by the housing bubble such as the HARP program.
The Loan is Too Big for Conventional or Government Loans
If you need a jumbo loan, things will naturally be more difficult for you. Your LTV and credit score will be assessed very carefully. These loans are often privately held by financial institutions and so the overall requirements will vary substantially. However, most Jumbo programs require a substantially larger down payment, high credit scores, and a lower debt-to-income ratio.
Other Items to Consider for Home Refinancing
Unfortunately, if you’ve suffered from layoffs and the recession’s bad unemployment rates, you may find that your job history works against you. Remember that lenders are looking for stable employment.
Another factor to consider is your assets. Lenders want to know you can make your mortgage payments, and reserves will help them feel secure in your ability to do so. Money in your account will work to your favor.
With these reasons in mind, you can begin to work toward getting your financial situation to a place where you will be allowed to refinance. When mortgage rates are low, it will be worth it to be ready to capitalize on them.
Visit Home Loans Today to find out more about home refinancing and other mortgage loan options. The experts at Home Loans Today will help you understand all the available options when it comes to home loans.