A Cash-Out Refinancing has several attractive benefits. It can lower your mortgage rate, reduce your interest fee and shorten your mortgage term. You can get tax incentives, build faster equity and even receive cash out after closing. However, not all homeowners can get a cash-out refi approval.
If you plan on taking out a Cash-Out Refinancing in Texas, avoid the following common reasons for a refinancing mortgage rejection.
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Poor Credit Score
Lenders check their borrower’s credit score as this is an indication of how much of a risk you could b if they choose to extend a mortgage deal. A credit score that is below the minimum credit score requirement won’t help you seal a cash-out refi deal.
Too High Debt-To-Income Ratio
Having too much of your income going straight to your monthly debt payments results to a high Debt-To-Income Ratio. Nowadays, most lenders will offer their mortgage offer to borrowers who have a maximum of 43% DTI Ratio (including housing payments). When you have too much debt under your name already, a cash-out refi mortgage might not make sense with your income and current debt.
To get approved for a cash-out refi, you will need to check how much is the current market value of your home. Homeowners will need a home appraisal for an accurate home value check. You can get denied if the results show that you owe more than your home is worth.
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History Of Late Home Loan Payments
Lenders will check your mortgage history payments just to see if you have any late payments. If you have a history of a late mortgage payment, this can affect your cash-out refi application even if your FICO score is still within their minimum credit score requirement.
Income Is Unstable Or Too Low
Your income needs to meet the minimum requirements set by your lender. If it falls below their minimum requirement, you can face a cash-out refi rejection. Also, if your employment history shows you’ve been job hopping, you will find it hard to get approved since this can mean you have an unstable income source which can affect your ability to pay off the loan.
Hard To Verify Income
Being a business homeowner or are self-employed often find it hard to get a cash-out refinancing since their income is hard to verify. You may find it hard to provide the number of pay stubs you’ll need when applying for a refi, making it hard for a lender to check if your monthly income source will be enough to cover a cash-out refinancing.
Failure To Provide The Required Paperwork On Time
During application, lenders will ask you to provide all paperwork and will give you a deadline for submission. If you managed to miss the deadline, you’re putting your application at risk. This is especially important once you start working with an underwriter. They may require additional paperwork and ask you to fill out extra forms and explanation. Fail to submit their requests, and you risk your chances of getting cash-out refi approval.
Recommended Read: 5 key steps in the mortgage underwriting process