A refinance can save you thousands of dollars over the life of your loan. You can even borrow more money to cover a vacation, wedding or home improvements. While the benefits are good, not everyone can qualify. A refinance loan is underwritten using the same guidelines as the original mortgage. You must prove your capacity to repay the loan and show enough equity in the property to support the refinance request. This can be problematic if your income or the value of your home has decreased.
Obtain a copy of your credit report and review it for items such as collections, judgments and liens. Contact with your creditors to address any discrepancies prior to beginning the refinance process. Maintain copies of all correspondence.
Speak to a mortgage representative. If possible, contact the same person you dealt with on your original loan. Explain your situation and inform him of any potential obstacles such as poor credit, reduced income or decreased value in your home.
Provide a written explanation of any adverse material that may be present on your credit report. For example, if you have a medical account in collection due to a dispute with an insurance company, explain the situation in a detailed letter. Present the bank with copies of any applicable correspondence.
Provide plans and specs for any improvements you plan to make with cash out from the refinance. Obtain real estate listings for houses that will be similar to yours post-improvements. Submit the comps to the bank as evidence your home's value is likely to increase.
Submit proof of any secondary income such as alimony, child support or income from a second job. Inform your mortgage rep of any potential future income such as a raise or a new job. This may help if your debt-to-income ratio is on the border.
Request to speak to your bank's collections department if you get denied through the standard process. Explain to the collection officer that you will have difficulty making payments. The bank may choose to reduce your rate or institute a temporary interest-only period to provide you some relief. This is usually more cost-effective for the bank than going through the expense of the foreclosure process.