In 2024, 25.6% of refinance applications were denied, up from 9.5% in October 2023. With economic shifts, tariffs, and job market changes, securing a mortgage refinance is tougher. Here are five reasons why you might have been denied and what to do next.
Why Your Refinance Was Denied
- Low Credit Score: Scores below 620 often disqualify you for conventional refinancing (LendingTree).
- High Debt-to-Income (DTI) Ratio: Monthly debt exceeding 43% of income raises red flags (Bankrate).
- Insufficient Home Equity: Less than 20% equity can block approval if your home’s value is low (LendingTree).
- Unstable Employment: Recent job changes or irregular income signal risk to lenders (Bankrate).
- Incomplete Application: Missing documents like pay stubs can halt the process (LendingTree).
What to Do If Denied
Wait and Improve Your Finances
You can reapply immediately, but each application triggers a hard credit check, which may lower your score. Instead, wait and boost your credit by paying bills on time and make extra mortgage payments to build equity.
Explore Specialized Refinancing
If you have an FHA loan, try an FHA Streamline Refinance, which skips appraisals and income checks. VA loan holders can explore a VA IRRRL for simpler requirements (CNBC Select).
Consider a HELOC
Need cash? A HELOC lets you borrow against 20% or more home equity with lower rates than personal loans. But you have to be cautious, HELOCs often come with serious downsides—read our guide on 5 Reasons a HELOC Is Dangerous and 3 Alternatives .
Rent Out Rooms
Renting spare rooms can generate income to pay down debt or boost your credit. Use platforms like Airbnb or local listings to find tenants, ensuring compliance with local laws (CNBC Select).
Sell and Stay
A sale-leaseback lets you sell your home, cash out equity to pay debts, and stay as a renter, cutting homeownership costs. This trend, inspired by commercial leasebacks, is gaining traction in 2025 (Forbes Advisor).
You sell your house, cash out on the home equity, pay off debts and build your life back with money in the bank. This means no longer incurring in all the homeownership costs and the stability of having cash to pay and to invest. Check our our sell and stay program here:
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