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If you are applying for a refinance loan that requires a credit check, make sure you have made all payments on time for your mortgage and all other financial obligations. You'll benefit greatly if this is true for a minimum of 12 months ahead of your loan application.

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Now is the time to drop the interest rate on your 30-year mortgage or refinance into a 15-year home loan.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Late Payments Hurt Your Chances for a Cash-Out Refinance

November 29, 2019

Late Payments Hurt Your Chances for a Cash-Out Refinance
If you are looking at your cash-out refinance loan options, it’s good to start planning for the loan early. Not just to save up for closing costs you’ll need to close the loan, but also to make sure you have the best possible chance at refinance loan approval.

2019 has been an excellent year for mortgage loan interest rates and many borrowers have been tempted to pull the equity out of their homes in cash using an FHA cash-out refinance loan. 
There are other refi options that do not involve cash out, such as an FHA Rehab Loan (that you can use to refinance at remodel, repair, or renovate your home at the same time. What do these refi loan options have in common?

If you are applying for a refinance loan that requires a credit check (the FHA-to-FHA Streamline Refinance loan does not have an FHA required credit check or appraisal), you need to make sure you have made all payments on time for your mortgage and all other financial obligations.

You should make sure this is true a minimum of 12 months ahead of your loan application. Don’t come to the application process with missed payments on your credit record in the last year--you have a much better chance at loan approval with a solid record of dependable payments.

Your lender wants to justify the financial risk of issuing a refinance loan to you. But the lender’s job gets harder when there are late and missed payments in the last 12 months of the credit record. How is the lender supposed to justify approving the loan in such cases?

In some cases, compensating factors such as a bigger down payment or higher interest rate may be required to justify the loan.

That is one reason why it pays to discuss your refinance loan needs in advance with your lender, consider getting pre-approved for a refi loan, and consider calling the FHA directly at their toll-free number to request a referral to a housing counselor who can help you better understand FHA credit requirements for new purchase loans and refinance loans.

The “big three” financial issues for all home loan applications includes your bill payment history, employment/income history, and your overall FICO scores. Having difficulty in any of these areas is not an automatic barrier to loan approval. But you will need to know what the lender’s requirements are, not just the FHA’s.

And that means contacting a loan officer to discuss your needs, your financial goals for the loan, and what your options are for an FHA refinance. Most refi loans require a minimum of six months worth of occupancy and six months of mortgage payments (six individual payments, not the equivalent of six payments made all at once).

Some of those requirements may be higher depending on the loan, the lender, and your credit report.

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