Refinancing a mortgage can be a helpful tool for anyone looking to lower their monthly loan payments. Lower loan payments can be especially helpful if you’ve recently lost your job and are worried about your monthly budget.
Unfortunately, many lenders won’t refinance for unemployed borrowers. While it can be challenging, refinancing while you’re unemployed isn’t impossible.
Yes, You Can Still Refinance While Unemployed
You can refinance a mortgage if you’re unemployed, though there are additional challenges. There are a few things you can do to improve your chances as well.
Many lenders want to see proof of income to know that you’re able to repay the loan. Unfortunately, lenders often won’t accept unemployment income as proof of income for your loan. So, while refinancing during unemployment is difficult, it’s not entirely impossible.
How To Refinance A Mortgage With No Job
Refinancing your mortgage while you’re unemployed isn’t impossible, but it will take a little more effort and creativity to accomplish. Here are some strategies you can use to help you refinance your loan without a job.
Consult A Housing Counselor
If you’re not sure where to start, a great place is to speak with a professional about what is needed to refinance your loan. The U.S. Department of Housing and Urban Development (HUD) offers low-cost or free professional advice. They may be able to help you work through different alternatives to find a way to refinance your home.
Find A Co-Signer
A co-signer can greatly improve your chances of being approved for refinancing without having an income. A co-signer is a person who pledges to the lender that they will make your mortgage payments if you can’t. This gives lenders more assurance that the loan they make will be repaid.
A co-signer is also beneficial for someone who has a bad credit score.
It’s important that your co-signer understands the responsibility they’re undertaking before they agree to co-sign. They’ll be legally responsible for your loan payment if you don’t repay it.
There’s a lot of documentation that’s required when you refinance and it’s a good idea to get this together early and look for additional information that could help you qualify for refinancing. These documents include:
- Account information
- Tax returns
- Bank statements
- Recent pay stubs
- Proof of insurance
- Proof of unemployment
- Financial details of your co-signer (if there is one)
- Proof of any additional income, like freelance work or investment income
Talk To Your Lender
Talk to your lender about your hope to refinance while unemployed. Can they offer any alternatives, like a new repayment plan? You may also want to speak to the Loss Mitigation Department about a mortgage refinance or other alternatives, like a different repayment plan.
Choose A Refinance Plan That Works For You
If you’re able to secure mortgage refinancing with your lender, make sure the new rates and monthly payments work for your situation. It’s helpful to use a mortgage calculator to confirm that the new payments work within your budget.
Other Refinance Options
If a traditional refinancing isn’t in the cards, there are two other “streamline” refinance options available. These may be easier to qualify for if you have reduced income from unemployment.
- FHA Streamline: An FHA Streamline refinance is an option for homeowners with an FHA home loan and does not require income verification or an appraisal. You may need to meet certain debt to income ratios, so speak with your lender about options.
- VA Streamline: A VA Streamline refinance is similar to the FHA Streamline and available for homeowners with a VA loan. Less documentation is required, and you may not need an appraisal.
Alternatives To Refinancing
Refinancing won’t always be an option, but that doesn’t mean you’re out of options. There are other alternatives you can consider working through with your lender:
Ask For A Loan Modification
Even if your lender isn’t able to refinance your loan, they may be open to a loan modification. With a loan modification, you might be able to get your interest rate reduced or lengthen the term of the loan, reducing your monthly payments.
Request A Loan Forbearance
If you’re struggling to make your loan payments, a mortgage forbearance might be a better option than refinancing. A mortgage forbearance is an agreement to temporarily pause your loan payments. Before agreeing to a forbearance, make sure you understand how repayment works. Will your monthly payments increase after forbearance or will your loan term lengthen?