Cash Out Refi Declined

by Kevin F
(Newtown, Connecticut, USA)

Ask Kate about cash out refi that was declined and relocking the mortgage rate: Hi Kate. Great site. I just had my loan application declined because my cash out amount was too high. It's a $600K house, I owe $200K and want an additional $100K for improvements.
Kevin continues... The lender is great and the issue is that my income in 2009 and 2010 was a lot less than this year, so I understand the reason. I am okay with only cashing out at the level they said is acceptable ($50K vs the $100K) as I will scale back my plans.

However, since my rate was locked at 3.63 percent APR, the rates have fallen at least .25 to .375. If I moved forward with a new amount to cash out, isn't that a new loan and therefore my broker/representative/lender has the option to get me the lower rate and then re-lock me in again on this new loan?

I see it as my loan was declined and I have the option to reapply if I want to without any penalty (am out the $450 for completed appraisal). If that's the case, couldn't I ask for a new rate and lock?

My original lock expires tomorrow including a 10-day extension they gave me. We have both been working constructively and respectfully throughout, and I want to borrow from them. Thanks. Kevin

Kate Answers: Cash Out Refi Declined

***zz-portrait-left.shtml*** Dear Kevin,

Yep, it sure sounds to me like you were declined for lack of income.

But first things first. If you haven't received it already, ask for the loan decision to be put in writing.

Verbal doesn't cut it.

Mortgage Rate Lock Agreement

Secondly, haul out your mortgage rate lock agreement with the lender's terms. (You DID get the lock-in terms in writing, right?)

The first thing I'd look for is a rate lock cancellation fee if the mortgage application is declined. After all, you want to know what to expect when you approach the lender over a re-lock.

Mortgage Rate Float Down Provision & Re-Application

Thirdly, go through the rest of the terms carefully. The rate lock agreement should spell out the procedures for re-locking if rates come down. This is called a float-down. If this is available, getting the current mortgage rate could be a very simple procedure.

Fourthly, you should find out what happens if you allow the lock-in period to expire. Some lenders will not allow re-applying borrowers to lock in a lower mortgage rate for a specified period of time.

Interest Rate Lock Practices

Due to mergers, I worked for several mortgage companies and later on, brokered to dozens of lenders. This is what they had in common when it came to locking and re-locking a rate: Very, very little. I found they even had different interpretations of the federal statutes, not to mention varying internal practices.

So what this boils down to is the mortgage rate lock agreement you signed, and hopefully have a copy of. Those are the rate lock terms the lender and you have agreed to.

But I want to add one more thing you can do. Tell your mortgage broker/representative/lender that you want a lower interest rate due to current market conditions. Enlist their help. You never know! Your simple request may be enough to get you the lower rate.

Comment and Link To This Page

Kevin, good luck! Let me know how it turns out. I'd like to hear back from you.

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Cash Out Refi Declined (Comment 2)
by: Kevin

Hi Kate. Me again. I'm just taking a closer look at some of the statements in emails from my lender. He states "The funds are purchased on the day it is locked and it is a done deal on that day as far as the cost of the loan goes. Once locked we are both bound to that exact pricing and that is what is delivered when you close." Is this true? If so, what happens when the rep assigns the loan to a processor and that processor determines about a week later that because my income to debt ration is unacceptable they decline my loan? Thanks.

Kate here: As a broker, I observed my fair share of lenders practicing this. But as the customer, it really is not a concern of yours unless you signed a document binding yourself to the same terms in your rep's email.

It's true, locking in a mortgage rate is risky for lenders. But it's the lender choice. You need only be concerned with what you have agreed to in writing. It might be a good time to remind all parties that you are their customer! Kate

Follow Up on my Cash Out Refi Declined (Comment 1)
by: Kevin

Kate, thank you for the explanation and advice. I have in writing (email) the following statement at the end of a lengthy and appreciated explanation from my loan processor about how my income is calculated against the loan amount. "I am really sorry to let you know that we will not be able to get an approval based on the provided income information."

Also, my "CONDITIONS OF LOCK-IN" document includes a lot of language about the lock status when the loan closes, but when the loan is declined, it states only this: "In the event the borrower's loan request is declined, whether the lock-in rate was guaranteed by the lender or (XXX) Corporation, the Lock-in shall expire." No penalties that I can see anywhere in the document.

I feel like I am being "moved into" a revised loan with far less cash-out and a new lock extension (that I didn't ask for). I'm feeling that the rep and the processor are trying to keep me at the higher rate I originally requested. If I were to newly apply for the new loan with the lower cash out, the rate available to me would mean I would save at least $3,000.

Kate here. To re-apply for a new mortgage would be somewhat of a gamble since you'd be walking away from your loan terms and the locked-in rate. If the market turned ugly, mortgage rates could become volatile.

Or since it does not sound like your rep is offering you all options, you could start climbing the company ladder until you get to someone with the authority to guarantee you could reapply for a new mortgage (since your current application was declined) and re-lock at current (lower) interest rate.

Good luck. Again, I hope to hear of your success!

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