Thousands of Americans found themselves without a job in recent years. Although the unemployment rate steadily decreases, it still leaves many unemployed. Many of these people could benefit from a mortgage refinance because it can free up money and even spare them from making a mortgage payment or two while everything gets started. While it is definitely more difficult to refinance when unemployed, there are options out there for you.
Do Not Consider Conventional Financing
In order to qualify for a mortgage refinance when you do not have a job you have to think outside of the box. Will you qualify for conventional financing? The answer is likely no, you will not. Conventional financing requires very strict standards and obliges the lender to ensure that the loan meets the Ability to Repay Rules. These rules state that the lender put forth a good faith effort to determine that the borrower’s income, employment, credit history and assets all point to the fact that the borrower can effectively afford the loan. If the borrower does not have a job, that likelihood is pretty much tossed out the window.
Creative Solutions to Refinance When Unemployed
If you do not meet the Ability to Repay Rules, does this mean you are out of luck? The good news is that there are likely several solutions to help you refinance when unemployed. You will have to get creative with your solutions, though.
Do you Have Alternative Income?
Take a long hard look at the type of income you bring into your household. You might not have a standard job with regular income, but do you receive any of the following?
- Child Support
- Side income
- Self-employment income for a new business
- Social Security income
- Disability income
- Rental income
Each of these types of income might be useful with certain lenders. The longer you can prove receipt of the income and the more regular it is, the more likely it is to stand a chance for your mortgage approval. The more income you can show a lender, the more likely they are to consider you as a plausible candidate for a loan.
Do you have a Cosigner?
You should also consider whether you have anyone in your life that could cosign the mortgage with you. Remember that anyone that cosigns puts their credit at risk as well. If you become unable to pay the mortgage down the road, the cosigner is obligated to pay. This could damage relationships and even financially harm the person that cosigns, so the decision needs to be made very carefully. If you have someone in your life that has adequate income and good credit, they could enhance your chances of obtaining loan approval even while you do not have a job.
Do You Have Investments?
While nothing replaces steady income when it comes to mortgage approval, investments can help to enhance your situation. Do you have trust funds or other hearty investments that could carry you through several years of mortgage payments? Many lenders consider these assets in the place of income, especially if you have a history of being able to find a job in a short amount of time. If the lender sees you as marketable in the employment world, they may consider your investments as proof of income for the time being. This might have to be combined with a cosigner, but the more positive aspects you have to share with the lender, the more likely your approval becomes.
Loan Modifications – A Last Resort
If you do not have anyone that can cosign the loan for you or you do not have significant assets available, loan modifications might be your only option. Typically, this process goes through your current lender who has to be willing to modify the terms of the loan in order to make them more affordable. Generally, loan modifications are reserved for borrowers that are either behind or can show impending struggle to make their mortgage payments.
The key to refinancing when unemployed is to shop around. There are many alternative or subprime lenders that will work around the Qualified Mortgage Rules and figure out a way to get you approved for a refinance. The fact of the matter is, though, that you have to prove that you can afford the loan one way or another. If you cannot prove it with regular income, you have to get creative with how you will afford the loan. A majority of lenders abide by the Ability to Repay Rules, either they are conventional or not, so keep that in mind as you shop around.
Before you start applying, consider all of the positive factors you have working with you. Do you have a cosigner? Do you have significant investments or assets? Do you have a job on the horizon? These are a few of the key factors lenders look for when they consider providing a refinance to someone that does not currently hold a job. Luckily, there are many lenders out there, so shop around and see who will lend you the money you need to make your mortgage more affordable.