Refinancing your mortgage loan to one with a lower interest rate should be easy, right? After all, you've already qualified for the original home purchase mortgage, the theory goes, so you should be able to qualify for a refinance without any problems.
Unfortunately, this isn't always true. Depending on any changes that might have taken place in your life since you applied for that original mortgage, qualifying for a refinance might not be that easy. Remember, when you refinance, you are paying off your existing mortgage and taking out a brand-new loan. This means that you'll again have to prove that you can handle your monthly payments.
You might think this will be an easy path. After all, if you refinance your loan to one with a lower interest rate, the odds are that your new payment will be lower than your existing one. If you can afford your old, higher payment, you can certainly handle the new, lower one.
Unlessâ€¦ What if you took on new debt since you applied for your purchase mortgage? If you bought an expensive car that comes with a big monthly payment, you might now have too much debt to qualify for a new loan, even one that comes with a lower monthly fee.
What if your gross monthly income has fallen since the days when you first took out your mortgage? If you are now working a job that comes with a lower salary or if it's been several years since you last received the regular overtime work that once boosted your income, lenders might decide that your new monthly income is too low.
You might struggle to qualify for a refinance, too, if your FICO credit score has fallen since you applied for your first mortgage. If you've missed car or credit-card payments or paid your student-loan bills late, your credit score might be lower today than it was when you received approval for your original mortgage. It might be low enough that lenders will reject your application for a refinance, even if you are paying your current mortgage loan payments on time each month.
These possible financial ups and downs are potential roadblocks and why lenders require you to supply copies of such documents as your last two paycheck stubs, last two years of W-2 forms and last two months of bank-account statements when you apply for a mortgage refinance. You'll have to send in these forms even if you are working with the same lender who originated your original mortgage.