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Unemployed? Refinancing Won’t Be Easy

refinancing when unemployed

By WSJ Staff

Sunday Journal’s Anna Prior writes :

Mortgage rates are inching down, making refinancing more attractive for people who want to trim expenses. If you’re unemployed, however, your chances of successfully refinancing your home are very slim—especially if you can’t prove a steady source of income.

“A couple of years ago, it would have been technically very possible,” says Keith Gumbinger, vice president at mortgage information firm HSH Associates. As lenders have tightened standards, they’re now scrutinizing all aspects of potential borrowers’ financial lives.

“Income documentation is one of the primary ways lenders identify your ability to repay them,” says Mr. Gumbinger.

And while some homeowners may be able to use unemployment benefits to aid in qualification for a mortgage modification under the Obama administration’s Making Home Affordable plan, currently there isn’t much relief for the unemployed.

The Obama administration is exploring programs that could help unemployed workers get mortgage help, including possibly extending unemployment benefits, said Housing and Urban Development Department senior adviser William Apgar before the Senate Banking Committee last week.

If you’re part of a multi-income household, and you or your spouse gets laid off, you’re in a better position to refinance than if you had no income at all. However, the working spouse’s income has to be sufficient to cover the mortgage.

So, what are your options if you lack income altogether?

For a refi, you’ll probably need to find a co-signer for the mortgage, either a close friend, spouse or relative. However, this could be a

dangerous route, given that relationships can always go sour.

“You could hang somebody else on your application, but you may be obligating them to the entire amount if you can’t make payments,” says Mr. Gumbinger.

One example where having a co-signer might make sense: if you are in the process of buying a home and suddenly lose your job. If you know your hiring prospects are good, asking someone to co-sign the mortgage on a short-term basis could work.

“As soon as the opportunity for income comes, refinance and take their name off the mortgage,” says Mr. Gumbinger.

You can also contact your mortgage company about a loan modification if it looks like you might be unemployed for an extended period of time, or lack the level of income needed to successfully refinance on your own.

“Work with your existing lender and see if you can hopefully come to some more beneficial terms with lower costs for a period of time,” says Mr. Gumbinger. It’s not always a permanent change, “but see if they can afford you some additional flexibility for at least a few years.”

However, if you think “I’m going to have a position within six months, you might not want to bother getting in touch with your lender,” says Mr. Gumbinger. “Any savings might be well offset by going through the loan modification process and it might only save you a couple of bucks a month in the long run.”

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