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Refi Reject

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Posted On: 12/07/2016

Question: With rates so low we decided to refinance our home. We do not have perfect credit but it never occurred to us that our application could be turned down. How long should we wait to re-apply?

Answer: Nobody likes rejection but two facts should make you feel better: First, you’re not alone. Second, you can re-apply today.

According to Ellie Mae’s September Origination Insight Report 71.8 percent of all loan applications closed – that also means 28.2 percent did not. The close rate was better for purchase applications (76.4 percent) then for refinances (66.4 percent).

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“If a lender rejects your loan application,” says the Consumer Financial Protection Bureau, “it’s required under the Equal Credit Opportunity Act (ECOA) to tell you the specific reasons your application was rejected or tell you that you have the right to learn the reasons if you ask within 60 days.”

That’s not all. The lender must also tell list the “key factors” which cause your loan to be denied plus it must provide your credit score and contact information for the credit reporting company it used. In turn, because your application was denied, you are entitled to a free copy of your credit report within 60 days of the “adverse action” notice.

While this may sound like bureaucratic nonsense, the rules actually act very much in your favor. Here’s why:

First, by listing the key factors for the rejection the lender is effectively pinpointing where the application was weak. It may well be that some of the concerns mentioned by the lender can be easily fixed.

Second, you can get a free credit report plus you have contact information for the credit bureau. Be sure to use this option. Get the report and look for any factual errors or items that are out-of-date. If you find a problem contact both the credit bureau and the lender. They will explain how to get incorrect items removed. That, in turn, should result in a higher credit score. Ask your lender if it has a “rapid rescoring” program so it can get a quick credit score update.

Third, don’t give up. You can go back to the lender and try to work through the problems that caused the rejection – remember, the lender doesn’t eat unless loan applications are approved so you have an ally. Or, you can contact another lender. There’s no rule that says you have to wait so many weeks or months to again apply for financing.

If you elect to contact a new lender be sure to explain what happened with lender #1. Show the second lender the rejection notice so that everyone understands what the problem was.

It may be the issues that bothered the first lender are not a concern to the second. For instance, maybe your credit score was too low or your debt-to-income ratio was too high with the initial lender but they are within the guidelines for the second.

So try again. Speak with several local lenders and see what they think before you make a formal application.

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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