Are you wondering why your refinance with cash out hasn't been approved? After all, it's your equity you are asking to borrow, isn't it? Yet if you have ever been in this position, you'd probably agree that the bank wants to see you on bended knee, begging for your funds!
Let's take a look at two homeowners who are attempting to borrow more than they currently owe on their homes.
My friend is surprised her refinance for cash wasn't approved. She owns her home outright and wants to borrow only 15% of the appraised value.
Why wouldn't a bank approve her refinance request for cash? Could it be too much debt or bad credit?
A cash out mortgage includes refinancing for lump sums of cash, consolidating debt and paying off liens such as home equity loans.
The smaller the mortgage, compared to the worth of the home, the simpler for a borrower to refinance with cash out.
Since your friend's request to refinance was declined, it could be due to poor credit, excessive debt, unverifiable income, or outstanding property repairs are standing in her way.
I make that assumption since borrowing a mere 15% of an appraised value is considered pretty low risk to a lender. However, regardless of the size of a loan amount, a lender still requires assurance that repayment will occur.
If you are having a difficult time understanding the specifics of the denial, learn how to communicate with your lender at How to Cure Mortgage Approval Hiccups.
On the flip side, if you can't believe your mortgage was approved, be sure to read the fine print. If it seems too good to be true, read even more carefully.
Don't rely on verbal explanations of mortgage terms. Get all promises in writing, signed and dated by the lender.
My family lived in small home in a very desirable older neighborhood where many people "over paid" for small homes in comparison to other neighborhoods in the area.
We started to plan a large addition to the home with a renovation loan when our 3rd child was born. But, by the time we selected a builder and finalized plans the due date was approaching and we decided to wait until after the baby was born.
Big mistake - the housing market crashed and our neighborhood seemed to be hit even harder because of the inflated values. Our renovation mortgage was denied because the appraisal was too low.
A few years later we had baby #4 and had to do something. A 3 bedroom 1200 sq foot home was not going to work. We did not want to move...we love the neighborhood, we walk to church and to the very desirable private school associated with the church.
We also did not want to go through the renovation loan process again so we found a way to get the addition done without a new mortgage. The addition and other improvements we made ended up costing about $120,000.
We added 2 stories - each almost 400 sq feet and put a basement underneath the addition that is connected to the original basement. We now have about 2,000 square feet with 4 bedrooms, 2 1/2 baths and the original basement is professionally finished.
To pay for this we consumed our savings and borrowed from family. We now want to refinance our mortgage and pay back family as well as lock into a fixed rate mortgage.
But, I am still concerned about appraisal value and how much I can borrow against this house. We owe about $135k on the original mortgage and I would like to get 60 to 70k out of the house in order to pay back family and have some savings back in the bank (for a rainy day).
I see all kinds of programs for people who owe more than their house is worth...but what kind of program is there for someone in my position who is not upside down on the original mortgage.
Our credit rating is very good and we have no debt other than one car loan. Our income level would more than support a loan of this size.
If you have a strong credit history, reliable job, sufficient income, and minimal debt, there are two more pieces to the approval puzzle to address:
1. Verified cash reserves (commonly known as savings).
2. Your home's value based on a market appraisal.
The more savings you can verify, the more comfortable an underwriter becomes with your file. Cash in the bank is golden to the approval process because it assures the lender that if and when you need to weather hard times, there is enough savings to make the mortgage payment.
When you submit your loan request, include at least two months of bank statements, all pages, per account. Verify stocks, retirement accounts, CDs, and IRAs, as well as ordinary checking and savings accounts.
A low appraised value is the toughest to overcome. Make a list of improvements you made during the remodel to give to both your loan originator and the appraiser.
You can't do much to increase the appraised value. But it never hurts to offer the appraiser a few addresses of recently sold homes similar to yours in the immediate neighborhood.
January 2016: The Mortgage Forgiveness Debt Relief Act Update.
September 2015: Fannie Mae and Freddie Mac Improve Loan Modifications.
Keep on the right path at A Homeowner's Survival Guide to the Intimidating Mortgage Process.
Please tell your friends about Refinance with Cash Out - How to Avoid the Woes. I hope you'll come back and visit often.
Aug 11, 16 10:49 AM
Aug 11, 16 10:18 AM