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Refinancing your Home When you are Unemployed


An increasing number of homeowners today are looking at the possibility of refinancing their mortgages, particularly those with adjustable rate mortgages who have seen their payments skyrocket in recent months. If you are unemployed; however, the hurdle of refinancing your home may seem to be one that you just can't cross even though you could likely really use the benefits of a refinance.

There is no denying that being unemployed and trying to refinance your home is a difficult situation. The simple fact is that it can be extremely difficult, if not downright impossible, to obtain a home loan if you do not have a steady income. Even worse, your home can quickly become unaffordable when you are without a job.

During the last year, interest rates have dropped to their lowest levels in decades. Refinancing a 30 year mortgage could easily save most families a tremendous amount of money. The trick is figuring out how to refinance when your current job is looking for a job.

Despite the challenges, there are some tips that may actually be able to help you if you are interested in mortgage refinancing for the unemployed.

The most important part of the process will be proving that you have a steady income. If you have been doing any work on the side, freelance work, handyman work or any other type of self-employment you may be able to benefit from a no-documentation loan. This is a type of loan that is specifically designed for individuals who are self-employed as well as business owners who are not able to document a steady income.

Rather than requiring proof of salary and employment, this type of loan instead requires documentation of assets and credit history information. You should know that this type of loan can be more expensive than other loans. In fact, they often carry a rate that is one point higher than the market average. This means that if your primary goal is to refinance at a lower rate, this may not be the best type of loan for you.

If you have good credit history, that could possibly help you in obtaining a refinance, but you should consider the fact that the rate will still likely be above the market average. Also, you will need a fair amount of equity. In most cases, you would need at least 30% in order to refinance.

It is also important to consider the fact that lending guidelines have tightened as a result of the current market conditions. As a result, lenders are more likely to require documentation regarding how a loan will be repaid than in the past.

While unemployment benefits can help to bridge the gap between jobs, in most cases you can only receive payments for 26 weeks. This means that you cannot count it as steady income and it cannot be used when applying to refinance your mortgage. Although you may be eligible for extended unemployment benefits, even those extra payments will not help you when it comes to refinancing.

One option you might consider is acquiring a co-signer for your mortgage loan in order to refinance. Almost anyone can serve as a co-signer for your loan; a relative, a friend or even a spouse. Keep in mind that if you are not careful this can easily interfere with a relationship if you are not able to make payments on time and the other person is forced to take on the responsibility of the entire loan.

Of course, you should also keep in mind that you may only need a co-signer for a short period of time. Once you find a job and have a steady source of income once again, you could have the name of the co-signer removed from the mortgage.

The best course of action if you are suddenly unemployed and discover that you are having trouble making your mortgage payments is to simply talk to your bank. It is naturally in their best interest to ensure you do not default on the loan, which means they may be able to assist you with modifying your loan for a short period of time. It may even be possible for you to lower your payment and extend the period of the loan. While extending the length of your loan is not the most ideal solution it is certainly better than losing it through foreclosure and will also help you in keeping your payments current, which can help to save your credit.

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