Interest rates are at an all time low. Although the housing market is weak, refinance business is booming. However, a big segment of the market is asking-How do I negotiate a mortgage refinance if I’ve lost my job?
It is a great question and one that has not been fully addressed yet by the government. During the last few years there have been less loan programs available making it difficult for borrowers to refinance. Other factors such as credit issues and the loss of a job have made the problem even worse.
It is impossible to refinance your home if you are currently unemployed. Furthermore, if the length of unemployment is protracted, it could affect your chances of getting a loan in the future. When applying for a mortgage, a lender will look at your credit, assets and equity in your home. Assuming all of this checks out, the next thing that is evaluated is your employment. Simply having a job is not an automatic approval. Your lender will evaluate many things including how long you are with your employer, spaces or gaps between jobs and if your current position is similar to the last one. Frequently, the best loan application might be turned down because the underwriter does not like the history of employment.
The only option for an individual who is unemployed and looking to reduce his/her mortgage payment, is a modification. A loan modification can provide many of the same benefits that refinancing can. Furthermore, a modification does not cost anything. There are no upfront charges or closing costs involved, unless you decide to hire a professional service. With recent changes in the laws, many homeowners have simply elected to do it themselves. Since banks are very agreeable to loan modifications, it’s only a matter of falling within the banks qualifying parameters to get an approval.
The parameters for qualifying for a modification are not the same as those used in a refinance. Credit, income, equity in your home and employment are not scrutinized in the way they are for a refinance. (A do it yourself loan modification guide can provide additional help). This does not mean that it will always be possible to obtain a permanent loan modification while currently being unemployed. It can provide a great short term solution during the rough patch where you have no income coming in and are searching for work. Many Banks will give you a temporary forebearance. This is usually a reduction or complete elimination of your mortgage payments for a period of about three months. After that time, the lender will look at turning your forbearance into a modification, provided you have found a job.
If you are searching for way to refinance if you are not employed, a forbearance or modification is going to be your best option as a short term solution and possibly a long term fix too.