February 21, 2013
A reader asks, “My divorce was final last March. My ex got the house. He’s suppose to be getting it refinanced but has been turned down twice for the Streamline. What are we missing? It was “transferred” to him through divorce, he has all documents showing he’s made the payments since we bought the house 5 years ago to present. And what’s the “non-credit” qualifying requirement? From what I’ve read, he should be good to go with that but the lenders, or lack thereof, keep turning him down due to debt/income ratio.”
Reader questions like these are common; unfortunately there are too many variables that could affect a refinance loan application to answer this reader’s query specifically.
What variables could be at work in situations like these? Any number of things including a Streamline Refinance loan that has resulted in higher payments due to add-ons such as energy efficient improvements, discount point or other items. A borrower who has identity theft issues on a credit report may find a refinance loan application held up while those issues are addressed.
Other problems that could affect a refinance loan application in these instances could be simple lack of communication–does the lender have the most current documents, including applicable legal paperwork showing ownership? Are there electronic records that have not yet caught up with the most current status of ownership? As you can see there are many unanswered questions.
The most telling part of the reader question in this particular case is the final line–the applicant has been turned down due to a high debt-to-income ratio.
That may or may not indicate that the borrower was required to undergo a new credit check as part of the streamline refinance loan. In such cases, if the lender determines the debt-to-income ratio is too high, it may indeed warrant a denial of credit depending on the circumstances.
The best course of action in these cases is to discuss all the specifics of the situation with an FHA approved housing counselor who may be able recommend a course of action to reduce the debt to income ratio and other credit improving actions the borrower might need to take. As we always recommend in these cases, don’t waste time or money on third-party agencies that promise to repair your credit for you for a fee–these services often don’t provide anything more than the borrower can do on his or her own.
Do you have questions about FHA loans or FHA refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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