Being unemployed is a challenge. To refinance while out of work is even tougher but not entirely impossible. If you’re unemployed and need to refinance, don’t fret as you can still do refinancing to lower your monthly mortgage payment. We have outlined a number of options you can take in order to refinance given your current unemployment status.
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1. Enlist a co-signer.
You can seek the help of a spouse, loved one, or a friend to act as a co-signer on the refinance loan. This co-signer must have a good credit standing and a steady income. Remember, the co-signer will be obligated to repay the loan in the event you are unable to continue repaying the loan. Removing the co-signer from your loan is one of the things you could do after you get approved for a refinance.
2. Enter an alternative source of income.
For those without work but starting a new business, the income derived from business activities can be used to qualify for refinancing. Income from rent, disability pay, child support, and alimony may also be added to your refinance application. It’s up to the lenders to consider these income streams.
Qualifying through assets alone is possible in some cases, e.g. you’re a retiree and can freely dip into your retirement assets without penalty.
3. Enhance your value to the lender.
Being out of work can raise a red flag to lenders who have to see to it that you have the ability to repay your mortgage. Make yourself still creditworthy to lenders by rounding up your financial documents such as previous pay stubs, tax returns, financial statements of your co-signer, your sources of other income, and proofs that you have undergone financial hardship.
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4. Engage a housing counseling agency.
Housing counseling agencies are approved by the U.S. Department of Housing and Urban Development to provide advice on issues facing homeowners such as refinancing when unemployed.
In conjunction, the U.S. government has established loan modification or refinancing programs, as applicable, for unemployed homeowners. These options are:
- Home Affordable Modification Program is one way to lower your monthly mortgage payments to 31% of your verified, pre-tax monthly gross income. As the HUD site notes, a HAMP modification usually results in a 40% drop in monthly mortgage payments.
- Home Affordable Unemployment Program: Designed for homeowners who are struggling to meet their monthly mortgage obligations because they are out of work, UP calls for the suspension or reduction of these mortgage payments for at least 12 months while you find work again.
- FHA Special Forbearance: On behalf of qualified borrowers who have no work or other alternative income, the FHA will ask the loan servicer to extend the loan forbearance period, either through mortgage payment suspension or reduction also for 12 months.
- FHA Streamline Refinance: Income is not a determining factor when refinancing your existing FHA loan under FHA’s Streamline Refinance, for as long as you meet its other requirements. These include a show of net tangible benefit, a 210-day waiting period, and no late payments within three months prior to the refinance application.
Your end goal is to refinance so you can afford your mortgage better. Hopefully, you’d be able to find work soon so you can manage your new mortgage and get a better refinance deal in the future. »Contact our lenders to find out what your refinance options are.»
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.