7 Reasons Why You Can’t Refinance Your Mortgage

November 2, 2011 47 Comments »
7 Reasons Why You Can’t Refinance Your Mortgage

With mortgage rates so low, just about everyone and their mother has at least inquired about refinancing.

Unfortunately, a lot of current homeowners are finding that they don’t qualify for one reason or another.

That said, let’s explore some common reasons why you may be denied that precious refinance. And don’t fret, I’ll also offer solutions.

Lack of Equity/ LTV Restraints

Perhaps the most common reason for denial nowadays is a lack home equity, which translates to a loan-to-value ratio well above what’s acceptable.

For example, a great number of homeowners took out interest-only home loans and option-arms during the housing boom because home prices were only going in one direction. Up.

But once things took a turn for the worse, many of those homeowners had little, no, or even negative equity as a result.

Even those who opted for traditional fixed-rate mortgages may have sapped their home equity by cash-out refinancing repeatedly. Regardless, many of these homeowners will find that they don’t qualify for a traditional refinance thanks to their inflated LTV.

Solution: There are a few government-backed programs, as well as lender-based programs out there at the moment that deal with high LTVs. The most popular is HARP, and soon HARP 2.0 will be released, which has no LTV ceiling. Inquire with your loan servicer or any other lender/broker for details.

Loan Amount Too Big

What if your loan amount falls into the jumbo realm, and you don’t have the special qualities, such as an excellent credit score and a low LTV to qualify? This could make it difficult to get that low rate, let alone a refinance to begin with.

Jumbo loans are a lot more restrictive and come with higher interest rates than their conforming loan brethren. So expect more scrutiny if your loan amount is bigger than most.

Solution: Make it a cash-in refinance by bringing money in at closing to get the loan amount down below the conforming limit. This could also lower your LTV and land you with a lower interest rate!  Just make sure you actually want to stay in the house for the long-haul.

Credit Score Too Low

Another common refinance roadblock is a less-than-perfect credit score. And by less-than-perfect, I mean crappy. If your credit score isn’t where it should be, there’s a good chance you won’t get approved for your refinance.

Credit scores below 620 are typically considered “subprime,” and will make qualification difficult, especially at high LTVs. Basically the combination of a low credit score and high LTV is a huge risk for a mortgage lender to take, especially in today’s market.

Solution: There are still options for those with low credit scores, such as FHA loans. You just need to shop around more to find them or enlist a mortgage broker to do the legwork for you. Either way, understand that the mortgage rate you see advertised on TV won’t be the one you receive. So you may want to work on ways to actually improve your credit score before you apply.

Insufficient Income

Another refinance killer is insufficient income. If your income isn’t as high as you said it was when you first got your mortgage during the boom (stated income loan), you may be in for a surprise this time around.

And supplying your actual income to the mortgage underwriter could be a rude awakening, even with the low mortgage rates on offer. If you aren’t able to squeeze below the maximum debt-to-income ratio limit, you’ll be denied.

Solution: While making more money is likely out of the question, adding a co-borrower could help you qualify. Or paying off existing debt. You can also shop around to find a lender with more forgiving limits.

Spotty Job History

This is a biggie, considering how bad the unemployment picture has become in recent years.

If you can’t prove that you’ve been steadily employed, typically for the past two years in a row, the underwriter may deny your refinance application, even if you make plenty and have loads of assets in the bank.

Solution: If you lost your job and resumed working, an underwriter may consider your application if you can document that your income is stable, predictable, and likely to continue. You can also consider a co-borrower for help qualifying.

Absence of Assets

Another toughie is asset documentation, especially with that nagging unemployment situation mentioned above.

If you don’t have sufficient, seasoned asset reserves to show the underwriter you’ll actually be able to make your monthly mortgage payments, you may be denied that refinance.

So it’s very important to put money away early and often into a verifiable account. Your mattress isn’t verifiable…checking and savings accounts, stocks, bonds, retirement accounts, etc. are.

Solution: Even if you don’t have the necessary assets, asking a friend or family member for a short-term loan could work. Just move the money into your own account several months before applying for the refinance to avoid getting the third degree from your lender. Or consider a no cost refinance to reduce out-of-pocket expenses.

You Listed Your Home

If you happened to list your home for sale, then quickly realized no one was interested, you may now be pondering a refinance. Unfortunately, your prospective lender probably won’t be too thrilled about it, considering the fact that you may sell again if given the chance and prepay your new loan.  You may also run into problems when it comes time to appraise the property if it wasn’t selling at your asking price.

Solution: Call around and see which bank or lender doesn’t mind that the home is/was listed.  Then remove the listing before you apply to ensure there aren’t any complications.  And be prepared to write a letter of explanation regarding the “change of heart.”

In closing, these are just a few of the many, many ways you may be denied a refinance. This isn’t 2006. It’s 2011. And times have changed considerably.

Believe it or not, you actually need to qualify for mortgages these days. So do your homework and tie up any loose ends early on to avoid problems during the loan process.

Tip: If you think/know you’ve got a tricky loan application, calling on a mortgage broker may be a good move to help you navigate your way to an approval and a lower rate.

47 Comments

  1. Canadian Mortgage Inc November 4, 2011 at 6:34 am -

    Refiancing is a great solution for many, especially those whom have built up equity in their home and their interest rate is higher than today’s rate. But yes, to qualify for a refi loan is more difficult than it was just a short few years ago.
    Getting ones financial house in order before contacting a mortgage broker is very important and helps the proccess go quickly and smoothly. Good tips on how to work through some of the more common financial pitfalls when trying to refinance your home.

  2. Passcloud May 21, 2012 at 9:59 pm -

    blood suckers! They want you to refinance to get more money from you. while the money you already paid them for the first mortgage evaporates with the home value. Another bail out in disguise. Mortgage interest is wrong.

  3. Joan Stein August 15, 2012 at 12:15 pm -

    I’m in the middle of refinancing
    Small amount – $130,000 for 10 years

    However, the lender just told me that there is a problem because 43% of property is rental or business

    Now what? Can You advise me

  4. Colin Robertson August 15, 2012 at 12:40 pm -

    Joan,

    Your bank or broker hit an underwriting snag. If you’re working with a single bank, you may want to enlist a mortgage broker to see if a different bank can get around or work with your issue. Or at least see if an “exception” is a possibility. Good luck!

  5. Jenn February 24, 2014 at 8:01 am -

    There is also a seasoning requirement if you just refinanced or purchased your home, sometimes 120 days or longer.

  6. Mary June 19, 2014 at 3:18 pm -

    Fannie Mae purchased my loan when I refinanced in March. Now it’s June and rates dropped another whole point for my desired term. I want to refi again to consolidate debt and pay off faster at the lower rate while increasing my monthly cash flow, but the mortgage broker is saying Fannie Mae won’t let me refi until six months from March. Since it acquired my loan, do I have any recourse for an exception to their little rule? I plan to sell in 2 years, so I’m not keeping the house. I just want to increase my cash flow and pay off high interest debt at a lower rate.

  7. Colin Robertson June 19, 2014 at 5:46 pm -

    Mary,

    Are you sure it’s Fannie Mae’s guidelines and not an issue of the broker being subject to premium recapture fees?

  8. Tommy May 18, 2015 at 3:24 pm -

    My LTV on my investment property is just over 75%. They are telling me that I need to have it lower than that. I thought with good credit that 80% should be acceptable?

  9. Colin Robertson May 18, 2015 at 5:57 pm -

    Tommy,

    Good credit is great, but these days lenders are a lot more conservative in terms of collateral value. You can try using a broker to shop your scenario with a bunch of lenders all at once to see if there are any options.

  10. Luis July 1, 2015 at 12:47 pm -

    what happened if i don’t signed the closing because the numbers didn’t match.

  11. Colin Robertson July 1, 2015 at 1:59 pm -

    Luis,

    Then your loan shouldn’t fund, but you could lose any upfront costs that are non-refundable.

  12. Favio August 19, 2015 at 1:40 pm -

    Bought my home for 345,000 2 years ago with an fha loan. New lender said they can drop my interest rate from 4.5 to 4.125 and drop my monthly mortgage payments by 250 dollars a month by lowering my MIP. Is it worth it, I called my current bank and said they can do the same with a streamline refinance.

  13. Colin Robertson August 20, 2015 at 1:40 pm -

    Favio,

    Depends what your plans/goals are for the home/mortgage…also keep in mind that mortgage insurance may be in force for the life of the loan if you refinance.

  14. Scott September 2, 2015 at 11:07 am -

    Colin,
    Great article. I have refinanced before in my lifetime (2003). I have a pretty good income (6 figures), lived in my current home for 16 years and have held the same job for 19 years and have never missed any type of payment on anything. Credit score is probably anywhere between 700+ (mainly due to debt since I had to put 3 kids through college). Basically I want to refi to roll in the 2nd and 3rd mortgages. – All mortgages combined are at least at 80% LTV. I am actually looking to refi with the bank holding the 2nd and 3rd so they will now have all of them (1-3). Do you think this will put me in a good condition to get approval? Didn’t want to apply and get appraisal to get a negative. By refi I am actually clearing up about $1500 a month in extra cash. Does the bank even consider that?

  15. Colin Robertson September 3, 2015 at 9:16 am -

    Scott,

    It really comes down to qualifying, not being in favor with a certain bank necessarily. If you’re reducing monthly outlay by $1,500 that should certainly make it easier to qualify. But as the article states, there are all types of reasons why your refi may get denied.

  16. Julie Bobenmoyer September 23, 2015 at 7:36 am -

    My bank won’t refinance to lower my payment. Loss of wages and medical issues, not asking for a hand out just a little help. Why are they not willing?

  17. Colin Robertson September 23, 2015 at 8:50 am -

    Julie,

    Not sure your exact situation, but if you don’t qualify for refinance you may be able to get a loan modification instead. If one lender says no another may yes.

  18. Michael September 27, 2015 at 7:46 am -

    I had a foreclosure almost 7 yrs ago, but also have an excellent credit and income. I tried to refinanced my home but yet keep getting denied. What do I need to do?

  19. Colin Robertson September 28, 2015 at 11:17 am -

    Michael,

    It depends why they’re denying you…did you ask why? If it’s been 7 years since the foreclosure that may no longer be a problem, though your credit score might still need improvement. Best way to know for sure is to ask lenders why they won’t approve you and do what’s necessary to fix that.

  20. Auralee October 14, 2015 at 11:51 pm -

    I bought a home 5 years ago for 100,000 with my then-partner. 61,000 is currently owed on the primary and another 15 in a second. I moved out last November and moved to another state, he has since married. We have been trying to get the mortgage in just his name, as he is on title but not the mortgage. He has good credit, no debt, decent income and 20% cash down! I am trapped in this home ownership and can’t move forward with my life, as we arranged that he would pay me back my initial down payment of 17,000 and another 10,000 to walk away from the partnership in this deal. The credit union we hold the mortgage with has denied us, another bank I have done 3 successful business transactions and business mortgages with has denied us…help! Where do we turn to get a refinance for someone already on title? We’ve not had a single missed or late payment EVER, and have had documented rental income on the house since we bought it!

  21. Colin Robertson October 15, 2015 at 8:38 am -

    Auralee,

    Does he not qualify for a refinance on his own, or are they not allowing you to refinance and remove yourself from the new loan in the process? Might want to speak with a broker or someone else knowledgeable who can guide you through the process.

  22. Ashley November 19, 2015 at 8:14 pm -

    We are in the middle of trying to refinance and they said there is a lien on our house that was placed there the same day we originally closed. We made some calls and found out its because we used a down payment assistance program back in 2011. How will that affect the refinance?

  23. Jane Mccamant November 29, 2015 at 1:32 pm -

    Hi Colin!!!
    In 2007 my husband and I lost our stocks, our home and went bankrupt. At age 60 we started over . We did own another property close to Venice Beach, Fl. Together we restored the home over five years this 1961 home was gutted by our own sweat.while we lived there. My question is this. We sold it last year doubling our value by a reverse mortgage which gave us the means to put on a new roof, new appliances and floors, bathrooms, and the ability to stage it. It sold in one day. We moved to a new area and found a modern home. However, we have a mortgage of 800.00 which we did not in the Venice home it was purchased with cash. We have tried to refinance but they bankruptcy still shows up even though we were discharged in 2010. We have spent money from using Quicken loans for appraisal were told that it was too high. Funny it was the one they chose. My husband put in new granite kitchen as soon as we settled. We made 30,000 in 8 months. but Quicken found excuse after excuse. They kept us in turmoil demanding copies upon copies of documents such as bank statements which they had. After we spent 400 dollars on an appraisal they told us we could not cash out. Finally they said we did not have two months of cash reserves in the bank this is after 4 months of run arounds . They knew we did not have reserves this is the reason we needed to refii. How can we change to fit the pressing demands of loan companies. We have proven our skill of resurrecting ourselves but banks do not care.

  24. Colin Robertson December 1, 2015 at 11:32 am -

    Jane,

    Maybe try a different bank if Quicken is giving you the run around, even if you have to eat the appraisal cost.

  25. Colin Robertson December 1, 2015 at 12:31 pm -

    Ashley,

    You’ll have to determine the terms of that DPA and if there is any penalty for paying off the loan via a refinance before X date. May want to check your paperwork or the DPA providers website.

  26. Steve December 19, 2015 at 6:55 pm -

    We were denied, for refinance, my house has doubled in price ,the loan modification was denied because they say
    We make too much money.

  27. Colin Robertson December 21, 2015 at 11:05 am -

    Steve,

    Does that mean you’re eligible for a traditional refinance then? Your house is worth a lot more and you make plenty of money.

  28. Rich January 25, 2016 at 8:03 pm -

    Had our house appraised which came in 5,000 above what the bank needed. Now they are trying to come up with every excuse as in this one “the appraisal is wrong”. Everything thing else is great! What do we do?

  29. Colin Robertson January 25, 2016 at 9:02 pm -

    Rich,

    If it doesn’t look like they want to close maybe explore alternative banks…rates may have gone down since you applied…

  30. TJ February 12, 2016 at 10:45 am -

    Me and my husband have been trying to refinance our home we bought in 2001 to get a better interest rate and pay off the house as soon as possible. We owe 58,000 and only have around 15 years left on the loan but we are in our 50’s and just want to shave some of those years off. Never miss a payment and have over 800 credit score but can’t find anyone who will refinance unless we borrow more money which defeats the purpose of paying it off. Is this legal? Anyway if we did what they wanted our new loan would be 72,000. So why refinance. Our interest rate now is 5.15 and we could be at 3.15 but I guess we are the exception. Really feel like that is wrong!

  31. Colin Robertson February 12, 2016 at 11:22 am -

    TJ,

    You can’t refinance because your loan amount is too small? Keep looking if that’s the case or look into making extra payments to principal to get the loan paid off a lot faster.

  32. Wiill Renn February 22, 2016 at 12:23 pm -

    Hi there, just wondered, have a principle residence worth 210, 000, nice home on a lake in northern Michigan. Credit scores around 730. Never any delinquencies, lates etc, around 14000 in card debt. Looking to refinance from 144000 to 165000 to pay off cards and put on a new roof on. I have a guaranteed direct pension benefit of 52000 yearly and spouse salary of 35000. No other loans wtc, cars paid. We also have a small studio condo in Cleveland worth 30000 all paid we use. We only have around 8000 in GIC though in cash assets. Do you think we are on a decent refinance position? Present mortgage is 5.6 and can renegotiate to 3.8. And still have a smaller payment than now. Thank you

  33. Colin Robertson February 22, 2016 at 6:51 pm -

    Will,

    Seems like a good position to be in, certainly compelling reason to refinance if you can pay off high-APR debt, get a new roof, and get a lower monthly payment. Only technical downside is if you lengthen your mortgage term and keep paying mortgage into retirement. But that’s all your decision/preference and you can get shorter term mortgages too if you have any desire to do so.

  34. Dwight March 17, 2016 at 5:32 pm -

    Went through a divorce, decree say’s to refi in 90 day’s. Tried Quicken Loans, what a joke and run around. Other banks won’t refi either. There was a car repo’ed in the divorce and both name were on it. It has a judgement against us for the remainder of the loan which the ex won’t pay. What should i do?

  35. Colin Robertson March 22, 2016 at 11:46 am -

    Dwight,

    Either get other quotes from different lenders to see if you qualify or try to get the judgement removed if possible then apply after.

  36. Sandy April 21, 2016 at 10:22 pm -

    Hi Collin, I want to refi but I owe more than what the house is worth and my mortgage company says there is no equity in the home so basically I’m under water what are my other options to lower my monthly payments I need to redo the roof and others things need to be done around the house I need extra money and the only way would to lower my monthly payments

  37. Colin Robertson April 23, 2016 at 10:49 am -

    Sandy,

    You may want to look into loan modification programs (either federal programs or proprietary ones with your individual lender) that lower monthly payments so you have more in your pocket to make those repairs.

  38. LINDA May 18, 2016 at 9:49 am -

    If I am behind on my car payments will that stop me from refinancing my home

  39. Colin Robertson May 18, 2016 at 11:03 am -

    Linda,

    It can certainly hurt your credit score, and thus your chances of refinancing your mortgage. If you’re currently behind on the loan, the mortgage lender may also want you to bring payments current in order to approve your application.

  40. Yvonne DeVora August 23, 2016 at 2:23 pm -

    Hi Colin
    okay here is my question, I am trying to refinance my home I owe $123,000 but have a 2nd that hasn’t been paid in the last 4 years due to a divorce that bank wrote it off but with the refinance it comes up and now I need to get a hold of that bank & see if they will completely write it off or do a subordination on it
    What can happen if they want me to pay for it but I can’t afford it due to the divorce what can I do?

  41. Colin Robertson August 23, 2016 at 3:36 pm -

    Yvonne,

    It sounds like you might have trouble qualifying for a refi with recent delinquencies tied to that second mortgage unless the new lender will ignore the lates and the second lien holder will agree to resubordinate it or the refi can pay off the second mortgage in full and create one new loan.

  42. Lisa Anderson September 7, 2016 at 8:27 am -

    Hi, Colin. We have a ARM with $329,000 left on mortgage. Current adjustment is 3.25% until May. We qualified for refinance for 15 years at 2.875% with M&T Bank, no points, lender help of $1600 with closing. But the appraisal didn’t come in high enough. So M&T raised the rate to 3%, with $19 a month mortgage insurance. I just read in your comments that the mortgage insurance never goes away. Calculations bring this to an extra $41,000 for the life of the loan. Thinking in today’s unsure world, rates won’t be rising super high any time soon. Best to wait, or just ride with the ARM we have, which doesn’t have mortgage insurance?

    Also, we pay extra in principal most every month, trying to make our own 15 year (or less!) mortgage. Usually an extra $300 – $500 monthly.

    Thanks for any advice you can give here.

    Lisa

  43. Colin Robertson September 8, 2016 at 9:24 am -

    Lisa,

    It probably wouldn’t be advisable to go from a loan without MI to one with MI because the value came in low…but there are other ways around it, such as coming in with some funds to lower then LTV to 80% to avoid MI on the new loan. Or wait as you mentioned and pay the loan down further and try again in the future.

  44. Martha September 28, 2016 at 12:55 pm -

    Hi Colin,

    I have a mortgage loan that I fell behind on and was offered a trial loan modification, which I paid and have now received the documents for a permanent modification. I asked the mortgage company how much money is owed and was told its at least $23,000.00 but they are unable to give me the exact amount because there are other fees, at this point I’d like to know if there’s anything else I can do besides try to apply for a personal loan to to reinstate the loan and bring it current, or do the permanent modification? I bought my property back in 2001 at $190,000.00 I owe 135,000.00 and the property is currently worth $430,00.00.

    Thank you in advance for any advice you can give me.
    Martha

  45. Colin Robertson September 28, 2016 at 2:37 pm -

    Martha,

    I suppose weigh the pros/cons of the modified mortgage versus the alternative if it’s brought current and the cost of financing for covering the money owed to bring it current, and how you’ll pay back that financing.

  46. rommel September 30, 2016 at 10:33 am -

    Hi colin,

    I used a va loan to buy our current house for 382,500 at a 4.0% apr. It will be 2 years already in november, I have been thinking of refinancing but I have to much debt now and afraid that I won’t get approved. don’t know where to start I want to refi to pay off debt. How would I know the value of my house now?

  47. Colin Robertson September 30, 2016 at 2:42 pm -

    Rommel,

    Might want to look up your property address on Zillow or Redfin to get a ballpark estimate. If there’s a decent gap between current value and outstanding mortgage balance you might be able to get a refi done. Those sites aren’t totally accurate but should give you an idea. From there you can speak with some lenders to see if qualify otherwise. Good luck.

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