Translation for Refinansieringslån: Refinancing loan

When applying to refinance a loan, a new loan will be issued to replace the existing product offering a better rate and more favorable terms. The original loan approval doesn’t automatically mean you’ll qualify for a refinance. You will need to go through the eligibility process once again.

When applying for a new mortgage, the refinancing process is nearly as intensive as the original loan application. The loan provider will again assess credit, finances, and debt and look at the property’s value.

If your circumstances have changed adversely since the house was purchased, the refinance can be rejected.

Applicants who receive a denied application should expect an “adverse action” notice disclosing the exact reasons for the denial. This document allows applicants to make the necessary corrections to reapply within the appropriate time frame.

Simply because one lender denies the loan doesn’t mean all providers will reject it. We’ll review the common reasons lending institutions reject refinance applications so you can be prepared upfront to possibly avoid similar circumstances.

What Are Common Reasons Refinance Applications Are Rejected

When applying to refinance a mortgage, the existing loan will be replaced with a new loan with better interest and more favorable terms.

You will, however, need to go through the review process to see if you meet the lender’s requirements for the new loan. Go to https://besterefinansiering.no/refinansieringslån and learn more about refinancing loan products.

A house loan refinance is nearly as complex as the original application process. The lender will again assess credit, financial status, debt ratio, and the property’s value. If these circumstances have remained the same or improved, you have a better chance of approval.

However, if your profile has adversely changed, an adverse action notice will be issued along with the loan rejection, disclosing why the denial was decided. Here are some common reasons lenders reject refinancing applications.

The debt

Lenders find the most common issue when assessing refinancing applications is the borrower has accrued too much debt. The primary concern for loan providers with all loan products is that the borrower is capable of repaying the balance in full.

Because of this, there are guidelines in place that help lenders discern if a client is able to do so. DTI- debt-to-income ratio is one measure that looks at the income compared to the total debt expenditures each month.

According to federal government guidelines, a DTI ratio at or above 43 percent is considered high for house loans. The recommendation is that this rate falls at or below 36 percent. When assessing the loan application, if the new loan will put you above the threshold, the application could be denied.

The credit

A credit profile and score are also indicators lenders will use to determine if you can repay the new loan balance. Scores are measured from a low of 300 to an excellent score of 850. For a conventional house loan, loan providers expect a score of 620 minimum.

When refinancing a loan, however, those with a score in the mid-600s or below will have more difficulty qualifying for the product.

It’s important to be aware that credit scores will rise and fall with time. Since the original loan was approved, you may have had credit challenges with resultant dips. Before applying for a refinance, checking your credit profile and score is essential to ensure you’ll be able to refinance.

Also, if you filed for bankruptcy while paying on your existing loan, you’ll have a one to four-year waiting period before you can try for new credit, regardless of how much your score has improved.

The property value has been reduced

The loan provider must ensure the property value can justify the refinance. When the value has fallen, the loan can be rejected. With a house loan, the home serves as the security or collateral to cover the funds borrowed for the loan. If the loan defaults, the lender can seize the property and recover the loan balance.

It can be a problem if the property value is significantly less from when the original loan was taken. Your mortgage can be labeled “underwater, “meaning you’ll owe more than the house’s value. In saying that, the house will then be unable to serve as sufficient collateral.

In that same vein, if your house is neglected or in poor condition, or if repairs and improvements not approved by local housing authorities have been made, the loan can be rejected for similar reasons.

The refinance application is incomplete

A simple albeit critical reason for refinancing denial is the application being incomplete. If the loan provider doesn’t have adequate details to determine whether you qualify, they could send a notice alerting you that the paperwork was insufficient, or they will deny the refinance.

Each section of the application should be thoroughly and accurately completed, with all documents attached to confirm the application details. Some records lenders usually request include tax returns, W2s, pay stubs, bank statements, and on.

The loan provider will also use the application and the supplemental records to validate certain information, such as contacting employers to verify employment history. The loan will likely be denied if this effort proves challenging or the details can’t be confirmed.

The cash

With a home loan refinance, you must come prepared to pay cash at the settlement table for closing costs and associated fees. In some cases, loan providers allow borrowers to roll the refinance expenses into the loan or offer a credit that will result in paying a higher interest rate.

When the lender doesn’t offer these options, the application can be rejected for having “insufficient cash” to satisfy closing.

Final Thought

All loan providers’ primary concern when approving or rejecting loans is that the borrower can repay the loan balance in full. Refinancing involves replacing an originally approved loan with a new loan product.

That means you need to prove once again to a loan provider that you can repay the debt to achieve approval a second time. Remember, though, just because one lender says no doesn’t mean all providers will reject an application. Find out the reasons and try again.