10 Reasons You Haven't Refinanced Your Mortgage, and How to Change That Updated on: Sep 04, 2024

If you were forced to take a lower-paying job after being laid off, you may think that your lower income status might prevent you from refinancing. A general requirement to qualify for a refinance is that your loan is current. So even if you're making less money than you once did but you've managed to keep current on your home loan, you're in luck.

What you can do about it: If your income is indeed too low to qualify for the mortgage loan you want, you could pick up a side hustle and start stashing away cash. Remember that any money you can put down on your loan when you refinance reduces the amount of income you need to qualify, as in a cash-in refinance.

Related: Mortgage qualifying in the "gig economy"

Refinancing isn't a cheap endeavor since you have to pay all the traditional closing costs you would pay for a purchase loan. If you don't have a few thousand dollars saved to pay for refinance costs (closing costs, appraisal fees, credit checks and more) it doesn't mean you should abandon the goal of refinancing your mortgage.

What you can do about it: You may want to explore what is known as a "no-cost" refinance. In exchange for paying lower or no closing costs, your lender can refinance your loan to a slightly higher interest rate. Mortgage lenders make up for not charging you closing costs by making a little more in interest each month. HSH's Tri-Refi Calculator shows how you pay refinance fees affects refinance savings over time.

Related: How should I pay my mortgage closing costs?

Just as your credit score and home value are essential pieces to any refinance approval, so is the ability to properly document your income and assets. In addition to other paperwork, mortgage lenders ask to see pay stubs, asset statements, documentation of deposits and tax forms. In some cases, it can be difficult to present this information in a formal way that banks recognize.

What you can do about it: If you run a cash business and have no way to properly document your income, a refinance is most likely out of reach. However, if you're self-employed you still have options. For the most part, lenders want to see a consistent pattern of income and specifically at least two years of steady income you can prove with tax returns. If you don't have two years of reported self-employment income or tax returns yet, you may have to wait to refinance your home.

Related: Refinancing? Use this document checklist

We've yet to track down one homeowner who considered their refinance enjoyable in any way. Given today's strict lending environment and the significant paperwork associated with getting a new loan, many homeowners have simply decided the refinance process isn't worth their time.

What you can do about it: If the refinance process appears too daunting, consider which streamline programs are available to you. These programs can offer a simpler and quicker refinance process that could save you money without requiring too much of your time.

Related: FHA streamline refinances are real and worth exploring and Streamline refinance program replaces HARP

Whether you're refinancing your current mortgage or buying a home, one of the first factors mortgage lenders look at is your credit score. To lock in the best rate for your refinance, you may need a credit score of at least 740, according to myFICO. If your score isn't that high, a refinance might be within reach, but the rates and fees won't be as good.

What you can do about it: If your credit score puts you out of the running for a conventional refinance, you can still try your luck with the FHA, which currently has a minimum credit score requirement of only 580 for the loans they insure. You can also look for ways to boost your credit score in a hurry, the most popular of which include paying down debt to decrease your credit utilization and making sure all your bills are paid early or on time.

Related: 8 quick ways to boost your credit score

While housing prices have rebounded since the crash of 2008 -- and are still surging in some parts of the country -- not everyone has a lot of equity in their homes, particularly if they didn't put much money down.

What you can do about it: This is another area where you'll want to increase your credit score to at least 740. While refinancing your home typically requires you to have at least 10% equity or more, this rule doesn't always apply to consumers with great or excellent credit. If you have a strong income and good credit, it's possible you'll find a lender who will refinance your mortgage with a great mortgage rate.

Related: Home Equity Calculator and Projector - KnowEquity^SM Tracker

If you put less than 20 percent down when you bought your home, you're paying what is known as private mortgage insurance, or PMI. The premium for this insurance can adds up to around 1% of your mortgage amount each year (or more), and you normally pay it monthly until you have 20% equity in your home. At that point, you can prove you have 20% equity in your property with an appraisal and have the PMI removed from your home loan.

What you can do about it: If your home has increased in value, it's possible you do have 20% equity without realizing it. Order an appraisal to find out. If your house is worth enough based on today's housing values, you can either ask your current mortgage lender to remove the PMI from your home loan or refinance with a different lender and avoid adding PMI to your new mortgage loan.

Related: When can I stop paying mortgage insurance?

The Consumer Financial Protection Bureau (CFPB) notes that mortgage lenders prefer to extend loans to borrowers whose debt-to-income ratio is 43 percent or below. This means their debts and liabilities don't cost more than 43 percent of their gross income each month. If you have a lot of debt, you may not be able to find a mortgage lender who will give you the time of day.

At least for now, a "temporary QM patch" allows Fannie Mae and Freddie Mac to back loans with DTIs as high as 50%, but these will come with higher loan costs and higher PMI premiums, if you have less than a 20% equity stake.

What you can do about it: While high levels of debt may keep you from a refinance, you do have two options. You can earn more money so your income better matches your debt load, or you can pay down debt to improve your situation. In most cases, it's easier to focus on debt repayment, but especially on paying down high-interest credit card debt.

Related: Common refinancing mistakes

So, you were all set to refinance until your appraisal came in lower than expected. Unfortunately, a low appraisal can derail a refinance just as fast as a high debt load. But just because the appraisal came in lower than you expected doesn't mean the valuation of your property was inaccurate. It does mean, however, that your lender may no longer approve the loan

What you can do about it: While you can certainly challenge your low appraisal, your best option may be to renegotiate the deal. Other options include paying extra to make up for the lower value or even requesting a second appraisal.

Related: How to dispute a home appraisal

Age is nothing but a number, right? Well, when it comes to refinancing, age can play an important role in your decision. If you're retired or closing in on retirement, you may think a refinance isn't worth it because of your age. But like most mortgage decisions, it comes down to what is best for your own personal situation -- there's no one-answer-fits-all.

What you can do about it: Many older homeowners choose shorter-term loans when they decide to refinance. The shorter term allows them to pay off their loan by the time they retire or soon after. Or, if retirement savings are at a minimum, they may also choose to refinance into a new 30-year term to secure a lower monthly payment.

"If you intend to invest the extra savings for your retirement, this could be a good move, especially if you use the investment to pay off your mortgage in full at a later date," says Joseph Adkins, CEO of Global Asset Management Group in Altamonte Springs, Fla. This decision really revolves around your savings and your goals for retirement.

Related: Retire with your mortgage or refinance? and Differences in Refinancing for Younger and Older Borrowers