Getting to the end of your mortgage term only to find your mortgage renewal has been denied can be a tough pill to swallow. Don’t worry yet as there are options. In order to go through the process, you will need to find out some information in order to assess the choices available to you before you make an educated decision about your home.
Why was your renewal denied?
There are a couple of reasons why a borrower could be denied a mortgage renewal with the main one being too many missed mortgage payments. The second and quite rare reason is the current lender is no longer interested in having their funds lent out in mortgages. Depending on the reason why your renewal was declined, you may be able to move your mortgage to a new lender.
If your mortgage has gone into arrears, meaning you’ve missed payments that you have not made up, be upfront with that information. When your mortgage professional is looking for a new lender, any mortgage arrears can be a hard stop with some lenders so it’s important to know this information as soon as possible to eliminate options that don’t apply to your situation. If you are a couple of payments behind, you should still be able to find another lender to give you a mortgage if there is sufficient equity in your property. If your mortgage is close to being in foreclosure or is already in foreclosure, your situation is severe and your choice of available lenders is limited. If you anticipate problems in making your mortgage payments, it is wise to contact a mortgage professional before you get behind.
Some lenders will order your credit report before they issue an offer of mortgage renewal options. If your credit rating has deteriorated to the point that your current lender is worried you will not repay them, they could deem the risk too high and not issue you a renewal, instead they will demand a payout of their mortgage. This does not happen with all lenders, though for those of you who have also missed mortgage payments, an alternate or private lender may be willing to accept the higher risk associated with credit issues. They will be looking for other application factors to balance out the negative credit. Your mortgage professional will ask you for details about your income and property in order to determine how they can successfully structure your application for approval by a new lender.
How much is your home worth?
A mortgage is a loan secured by property and one of the most vital details is the value of that property. When moving to a new lender after experiencing credit issues, you are likely limited to 80% of your homes value as the new maximum mortgage amount. If that’s not enough to pay everything, you could consider a 2nd mortgage to cover the rest, though that should be the last avenue you explore.
You can get a general idea of your home value from your most recent tax assessment; however, I would not use this as a 100% reliable confirmation of value as the tax assessment does not always take into consideration any renovations or improvements made to the home. The most reliable confirmation of a home value is an appraisal report. Most lenders have their own approved appraiser list, so make sure you consult with your mortgage professional before you pay for an appraisal report.
Get your documents ready
A new lender does not know you yet, so be prepared to provide documentation to confirm your application details. This includes income documents, an appraisal report as well as a history of how you have made your current mortgage payments. Contact your mortgage professional for a more specific list of requested paperwork for your financial situation.
If you have exhausted all financing options including bringing on a co-signer or taking the private lender route, you need to be prepared for the next step. That could be selling your property, or finding someone you trust to ‘purchase’ your home from you and allow you to rent it until you can qualify for financing again. Do your research by having detailed discussions with a few different real estate professionals so you’re confident you have made an educated decision.
If you’re having problems repaying your current mortgage, search for solutions sooner than later and if it gets to the point of having your mortgage renewal denied, do not panic. Contact an experienced mortgage professional to explore your options. The more details and documents you can provide upfront, the easier a quick fix will be.