5 Most Common Mortgage Refinancing Challenges for Qualifying
ByIt seems like mortgage refinance rates are getting lower and lower with new records seemingly broken every month. Millions of homeowners want to refinance, but only a fraction of borrowers actually meet today’s mortgage refinancing standards as outlined by Fannie Mae, Freddie Mac and FHA. There are many reasons why consumers are unable to qualify for a home refinance loan. We listed the biggest obstacles that homeowners and lenders are reporting for mortgage refinance loan programs today:
1. Insufficient Credit Scores: According to leading national lenders, the number one reason for an applicant to be denied for a home refinance is credit. Banks and lenders have raised their minimum credit score requirements in the wake of the foreclosure crisis. Many people have been late on their bills and home loan payments and this is reflected in the average credit core plummeting according to Experian. If you have credit scores above 720 you will see green lights for most lending programs. If you have a credit score below 640 you will see more challenges in getting approved from a mortgage refinance lender proving a low interest rate. FHA has a minimum credit score of 500, but most of the FHA lenders are looking for a 620 fico score.
2. Not Enough Equity: The 2nd most common reason for homeowners not meeting refinance standards is lack of equity. The loan to value requirements on FHA refinancing is 96.5% LTV and 85% LTV if you want to receive for cash back. VA refinancing still allows 100% LTV but you have to have the military background to even be considered. Most conventional lenders are looking for a 80% loan to value criteria. Many homeowners are hoping that the revised Home Affordable Refinance Program opens the door for underwater borrowers to actually find a refinancing solution. The new HARP mortgage being released is said to have no loan to value restrictions.
3. Debt to Income Ratio is Too High: With unemployment hovering at 10% nationally and average household incomes’ declining it is not surprising that many homeowners are unable to qualify for a mortgage refinance loan because their debt to income ratio is too high. Many borrowers are used to utilizing the no income mortgage programs that enable people to state their income rather than document them. All government refinancing programs are requiring income documentation unless you are looking at the streamline options that bot FHA and VA offer to their existing customers.
4. Loan Limits Decreased: As Fannie Mae and FHA lowered the maximum loan amounts millions of borrowers lost their eligibility to refinance because their mortgage balance was higher than the loan limits permitted. Congress is trying to expand the FHA loan limits in high cost regions, so if they are successful, more homeowners will be able to refinance in areas like New York and California.
5. Tighter Lending Guidelines: With banks raising the requirements and lenders tightening guidelines for refinancing, many homeowners are unable to secure a payment low enough to keep their home. This is causing many consumers to bail out of the real estate market prematurely and the ripple effect has cause a giant wave of foreclosures and short sales.
The days of stated income loans are gone. The days of refinancing without equity are severely challenged and the subprime alternatives for bad credit refinancing have faded fast. The reality is that today you must educate yourself with the emerging programs for mortgage refinancing and align yourself with a lender that has access to the unique products like HARP, FHA, etc. Do your best to get your credit scores up and don’t be afraid to re-apply even if you were turned down for a mortgage refinance loan before. Guidelines change and many industry executives believe that there will be new refinance programs released soon that are more forgiving when it comes to equity and credit scores.
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