Refinancing your mortgage can lower your interest rate, reduce your monthly payments or provide the funds to pay other debts and expenses. However, application rejection is more common than many people think.
But there are ways to help improve your application’s chances of being accepted.
Here are four common reasons for refinancing rejection and how to avoid them:
1. A Low Credit Score
You don’t need a perfect credit score to refinance, but a low credit score can prevent you from reducing your interest rate or monthly payments. The higher your credit score is, the better, so consider taking steps to raise your score before applying.
2. Amounts Applied for Exceed the Home’s Value
In some cases, the amount you’re asking for might not reflect your home’s current value — especially if you’re considering a cash-out refinance. If you’re concerned this might be the case, you may want to adjust your application or make some value-adding home improvements.
3. A High DTI Ratio
Your debt-to-income (DTI) ratio reflects how much of your income you spend on debts, including your mortgage payments. Generally, you’ll want a DTI of 43% or less. If your DTI is higher than this, you may have trouble qualifying for refinancing. Consider paying off some of your debts to lower your DTI before submitting your application; debt payoff strategies can help you do so quickly, even with limited funds.
4. The Application Is Incomplete
Refinancing typically requires a credit check in addition to various financial documents. It’s possible to accidentally send incomplete, outdated or inaccurate financial documents, which can result in your application being denied. We can work together to ensure your application is complete, but it’s good to review your financial information before submitting it in a timely manner to be safe.
If you want expert help to refinance your mortgage, reach out today.