Denied a Mortgage Refinance? Do These 3 Things to Turn a No Into a Yes

by Maurie Backman | Updated July 19, 2021 - First published on May 13, 2021

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Turned down for a refinance? Here's how to be more successful on your next attempt.

Refinancing a mortgage is a great way to lower your monthly payments and save money on interest while you repay your home loan. But just because you own a home doesn't mean you're guaranteed to get approved to refinance your existing loan. You may be denied the option to refinance for a number of reasons, some of which you have the ability to work on. Here are a few steps worth taking if your refinance application is rejected.

1. Raise your credit score

To qualify for a new mortgage, you'll need to prove to a lender that you're a trustworthy borrower. But if your credit score is poor, you won't give that impression. If you're denied a mortgage, it pays to work on boosting your credit, and there are a number of ways you can do so.

First, make sure to pay every incoming bill on time. Your payment history is the single most important factor that goes into calculating your credit score, and being late on even a single bill could send that number plummeting.

Next, see if you qualify for a spending limit increase on your existing credit cards. Boosting that limit could actually help lower your credit utilization ratio. This could, in turn, help your score improve. That assumes, of course, that you don't then start charging more expenses against your higher limit.

Finally, check your credit report for errors. There could be mistakes lurking that are causing your credit score to drop, like delinquent debts you've already paid off or settled, or debts you never incurred in the first place.

2. Pay off some existing debt

Your debt-to-income ratio is another measure refinance lenders look at, and it speaks to how much debt you have relative to your income. If your debt-to-income ratio is too high, a lender may not want to loan you money for fear that you're overextended. If that's the case, work on paying off some existing debt. If you knock out some credit card balances, it could actually achieve the dual purpose of lowering your debt-to-income ratio and helping your credit score improve.

3. Boost your income

If you were denied a refinance, it could be because your lender feels you don't earn enough money to cover the loan in question. If that's the case, your best bet may be to try to increase your earnings, whether by taking on more work, picking up extra shifts at your main job, or by securing a side hustle.

You might think that by virtue of being a home owner, you'll automatically qualify to refinance your mortgage. But that's not always the case. If your credit is poor, your debt-to-income ratio is high, and your income is insufficient, you may be denied a refinance, even if you've always managed to keep up with your existing mortgage.

But don't despair. If you make an effort to address those problems and apply again several months later, you may find that you're able to get approved for a refinance -- despite having been turned down before.

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