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.