Turned Down for Refinancing: What's Next?
You just got turned down for refinancing. What do you do now? First things first – don’t panic! A “no” from one lender might not mean a “no” from all lenders. Find out why your application was turned down and how you can get around it.
Low Credit Score
So your credit score is a little on the low side. That might be why you were turned down this time, but luckily it’s something you can improve. Start by making sure all the information on your credit report is correct. Your information was right and your score is still low? Start paying off some of your debt (you’ll be happy to get rid of those student loans anyway). And if those options don’t work for you, programs like the Federal Housing Authority (FHA) work with people with lower credit scores.
Low Appraised Home Values
If your home is appraised at less than the amount you requested to refinance, your application is probably going to be turned down. Take a close look at your appraisal. Your appraiser might have missed that new patio or another upgrade you made to your home. If that’s the case, you might be able to request a new appraisal that will help your application go through.
If you owe more on your mortgage than your home is worth then your home is “underwater”. If your application is going to go through, you might have to negotiate with your lender to let you pay the difference in cash. It’s not a great option if you’re trying to remove equity from your home. But if you can get a low-interest rate or better financing terms, it might be worth looking in to.
Your income is a big part of your refinancing application. So if you can’t document everything you’ve earned, your application might be rejected. If that’s the case, you have a couple of options. You can try to work with your lender to find ways to document additional income sources, wait until you have the required number of tax returns, or just look for a new lender.
Excess Debt Utilization
Lenders look at more than just your income. They also look at how much debt you already have. If it’s a lot, the lender might think you can’t handle repaying their loan. If that’s the case, your first option is to wait until you’ve had time to pay off some of your debt and then resubmit your application. The second option is to find a different lender. But be careful--find a different lender will probably mean you won’t qualify for the best mortgage rates and loan terms.
If none of these solutions work in your particular refinancing case, you can also turn to government solutions like the Making Home Affordable program. But don’t count on these programs always being around. They’re usually temporary and you can expect to fill out a lot of paperwork to qualify.