Many people have heard that refinancing their home might be a great way to save money; however, before making any decisions, it is important for everyone to have an overview of how this process works.
When someone makes the decision to refinance a home, the goal is to save money by performing this task at the right time. When someone refinances his or her home, the goal is to, ultimately, get a lower mortgage rate than someone has currently on his or her home.
When the mortgage rates start to drop, some people might see this as an opportunity to finance his or her FHA loans. Sometimes, people might get rejected. There are several reasons why this might happen. Understanding these reasons can help someone get set up for success the next time around.
The Borrower Lacks Home Equity
One of the most common reasons why someone might get turned down in the refinancing process is that they haven’t built up enough equity in their home. When someone makes the decision to refinance, the equity in their home is used as an asset to complete the process.
If the equity isn’t there, the refinance cannot happen. In order to fix this problem, people need to stay in their home for a few more years. Then, they will have more equity in the home that can be used to complete the refinancing process.
The Credit Score is Too Low
Just like when someone first applies for a mortgage, their credit score is going to be used to determine whether or not they qualify. Having a good credit score is important because this reflects the risk that the lender might be taking on.
If someone’s credit score is too low, they are not going to be able to take advantage of everything that is available to them, such as refinancing. If someone has a credit score that is too low, there are a number of ways to increase their score. This will make their application more successful the next time around.
Making Late Mortgage Payments on FHA Loans
Another reason why someone might get turned down for refinancing is that they have made late payments on their FHA loans in the past. If someone makes late payments, there is less goodwill coming from the lender.
The lender is more likely to allow a refinance from someone who has been a good customer and has made their payments on time. Missing payments or making late payments will make that borrower a risk. Therefore, the lender is less likely to approve the refinance process.
The Mortgage will be Paid Off Soon
Surprisingly, a common reason why someone is denied a refinancing opportunity is that they are too close to paying off their mortgage.
If someone is going to pay off their home in a few months, the refinance procedure would essentially give them an entirely new mortgage for a few months, extending the life of the loan.
There isn’t much point in doing this, so the refinance application is likely to get turned down. It simply isn’t a good idea.