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There are multiple reasons why a homeowner might make the decision to refinance.

Perhaps you’re trying to reduce your monthly mortgage payment or shorten the term of your current loan. Or maybe you’re hoping to do a cash-back refinance in order to either pay off debt.  Whatever the reason, it’s important to remember that having a current mortgage doesn’t guarantee a refinance approval.

Here we will take a look at some of the reasons a refinance application might be denied.

  • Poor credit score or credit history:  Missed payments and negative marks on your credit report will likely keep a lender from approving your application.  Keeping up your credit score, even after purchasing a home, should be kept a priority. Life happens, which sometimes leads to financial stress. Do your best to maintain your credit score, keeping your financial options open.
  • Income is low or unreliable:   Lenders want their applicants to have steady, reliable income. If they find your income too low or unstable, they will likely deny the application.
  • Value of home is too low upon appraisal: The appraised value of your home must be greater than what you owe.
  • Debt-To-Income (DTI) ratio is too high:  The DTI requirements might differ from lender to lender, so be sure to ask your prospective lender about their criteria if you suspect this to be an issue.
  • Mortgage underwater:  A mortgage is considered underwater any time a homeowner owes more than the house is worth. This occurrence is less common with the current market; however, this is a reason from an application to be rejected.
  • Not enough equity: Typically, lenders require an applicant to have at least 20 percent equity in their home to qualify for a refinance.

You will always receive an explanation if your application is denied. In some cases, you might want to try a different lender. If you applied with a new lender, you might consider speaking with your current lender to see if there is anything they can do. With good payment history, you might find they’ll work with you in order to keep your business. If your credit score is the issue, work on increasing your score and apply again in the future. You might find an improved credit score might get you a better interest rate.