4 Things That Can Put the Kibosh on Your Mortgage Refinancing Plans

Can I Refinance My Mortgage

Can you refinance your mortgage?

Most people will refinance in order to get a better interest rate on their mortgage payments or to change the length of time they will need to pay down the mortgage.

Whatever your reasoning is for refinancing, you need to first take stock of your finances. Getting your first mortgage a few years back may have been relatively easy but the changes and chaos in the lending industry and with the housing market may end up throwing your refinancing plans into a tailspin.

Just because you were able to get a mortgage at one time does not prove you can do it again.

If you have been thinking about refinancing your mortgage, understand that there are several situations that can occur between the time you get your mortgage until the time you consider refinancing which may alter your eligibility for a better rate.

Here are some things to consider before contemplating a refinance:

Stricter Lending Policies

Since mortgage lenders have much stricter lending policies than they did years ago, it may be more difficult for you to get approved based on their current requirements. If you have switched jobs, lost your job, or other changes have occurred in your personal and financial life, you may no longer meet the eligibility requirements of some lenders.

This is especially true if you have subsequently started your own business or have irregular sources of income since you applied for your original mortgage. You many also be declined for a loan if you do not have sufficient proof of self-employed income, even if you are making great money, lenders want to see verifiable records before they are willing to take a risk in lending you money.

If you can prove your finances, you may still not qualify for the best rates on your new home loan.

Lowered Appraisal Values

With the economic downturn and the shaky housing market, the appraisal you once may have received on your residence is no longer sufficient. You can never be sure of appraisal value until you fork over the money to have one done.

Any changes you have made to the home or any repairs you neglected to do can be a factor in your ability to get refinancing. There are many cases where an appraisal was ordered and came in way too low to make the refinancing deal go through.

Irrelevant Income

For some who have lost their jobs but can still live comfortably enough until something new comes along, they may be interested in refinancing to lower payments and keep costs down.

However, there may be some issue with lenders when the homeowner doesn’t have a job or any verifiable income from a current employer. You may have a lot of assets but it may do you no good in the eyes of a lender.

Low Credit Scores

Since a credit score of 720 and above is the new standard for lenders, many homeowners may not be up to par with a good enough credit score to warrant good terms for a refinanced mortgage.

For those who want to refinance to lower the payments because they are struggling financially, refinancing may not even be possible if you have been late on payments in the past or are in danger of missing payments.

A credit score can be improved, but it takes time, which some people don’t have if they are looking to save their home and keep their financial life stable.

The best thing to do is research your options. Check in first with your current lender to see what they can offer you. If there is no deal to be had there, you might also want to check in with smaller, local banks who may be more flexible with their lending requirements than bigger banking institutions.

While the options for refinancing may not be plentiful for you due to financial issues of the past, there may be an option that would work for your needs.

Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance and investing topics, with features that include reviews, comparison guides, and Q&A sections.

Photo by nikcname

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  1. My husband and I purchased a home in December of 2009. I had owned a home previously and  we were able to get the long-term homeowners credit of $6500. We are separating this year and I want to leave this state before the end of the year.  I have told him he can attempt to refinance the home in his name only keep it. If he gets refinanced, how would that affect it ?And if he can’t  get the refinance and remains in it until December when the three year period is up for residency; will my leaving the area matter? The Deed is only in my name, as well.

  2. Philip Taylor says

    Excellent tip, Kathryn. Thanks for stopping by to share that experience. I had never heard of HARP. For those interested, it stands for Home Affordable Refinance Program. It’s a result of the Making Home Affordable Program.

  3. Hi there, I did a refi last fall and had quite an experience. My biggest issue was my appraisal value- I didn’t want to pony up more money to meet the 80% LTV if the value had dropped.

    But, my lender had some good news for me; my loan was purchased by Fannie & Freddie which means i was a good candidate for a HARP loan. That basically means your property value (when you have it assessed) can come in pretty low. The amount you owe can’t be more than 125% of the current mortgage..

    I had no idea that my loan could have qualified to be a HARP loan, my lender told me. Turned out my appraisal came in ok so didn’t need to try for the HARP, but would have done it if the appraisal came in low. I Refi’d and now paying $200 less in monthly mortgage payments though, good times over here!

    So my point is, ask your lender if you qualify for a HARP loan, there could be a way around your lower appraisal value.