It's a tough situation to be in. You can't get a home loan without a steady income, and without a job you can't afford your home.
Interest rates have been at their lowest levels during the past year, and refinancing to a fixed, 30-year mortgage would save my family some money over the long-term. But finding out how to refinance was never at the top of my to-do list; looking for a full-time job is my top priority.
Even with my wife working full time and enough part-time jobs to keep me busy, we may not earn enough to refinance our mortgage.
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- How much can I borrow?
- How much will my mortgage payments be?
- How much will my adjustable rate payments be?
- Which is better: fixed or adjustable?
- Should I pay points to lower the rate?
- Which is better: 15- or 30- year loan term?
- How much should I put down for a new home?
- How much can I save in taxes?
- What will my closing costs be?
- Am I better off renting?
- Am I better off refinancing?
- What will my refinancing costs be?
- How can I reduce mortgage insurance costs?
- Which lender has the better loan?
- Which loan is better?
- How advantageous are extra payments?
- What home can I afford?
But looking around the Internet and finding some advice on how to refinance led me to a few solutions that the unemployed could look into.
Proving that you have a steady source of income is the most important thing for a lender. And while I don't have a W-2 form to show the bank because I do freelance work, a "no-documentation" loan is designed for the self-employed or business owners who don't have a steady income.
Instead of proof of employment and salary, the loan requires credit history and assets. Experts warn that these loans can be costly -- a percentage point above the market average -- so they may not work for someone seeking to refinance at a lower rate.
Having good credit should help get a loan refinanced, although the rate will be higher than the market average. And you'll need a high amount of equity -- 30% to 40% -- to refinance.
Lenders have tightened standards and are more likely now to want documentation of how they'll be repaid. No more lying on loan applications about your job.
One lesson in how to refinance is that while unemployment benefits are steady income, they're only steady for 26 weeks or so, so that money can't be counted on to make house payments. The Obama administration's Making Home Affordable program offers help in mortgage modification, but doesn't give much help to the unemployed. The government is considering extending unemployment benefits once again, for just this reason.
Having a co-signer for the mortgage is another way to refinance. It can be a close friend, spouse or relative. Just don't let it interfere with a relationship, which would easily sour if you couldn't make payments and they had to take on the entire loan amount.
However, a co-signer might be a short-term solution if you're in the middle of buying a home and suddenly lose your job. You could refinance once you get a job and take their name off the mortgage.
Probably the best step to take once you lose your job and want to refinance your home is to ask them how to refinance. Banks don't want you to foreclose, so they might be willing to modify a loan for the unemployed for a certain amount of time. They might at least be able to lower your monthly payment and extend the length of the loan, which isn't ideal, but keeps you in your house and your payments current.
And if none of those ideas on how to refinance work, then hope that your spouse keeps his or her job and makes enough money to refinance. The working spouse's income must be enough to cover the mortgage.
That's the best tip on how to refinance: marry into wealth.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area. Reach him at www.AaronCrowe.net