Refinancing strategies for financially challenging times
Life is unpredictable. It offers no guarantees and unexpected challenges come.
You can live on savings for a while but want to hold on to your cash for as long as possible. Can refinancing help?
In many cases, yes. Today's mortgage rates are near all-time lows and oncoming mortgage programs are designed to help homeowners in trouble.
With a little planning, you can take more time to return to a safer stage in your life.
Check your refinancing eligibility. Start here (21.10.2021)
In this article (continue to: …)
First steps in the event of loss of income
If you miss a payment, mortgage refinancing can be difficult, but not impossible.
Most lenders and mortgage programs want to see a clean payment history for six to twelve months before agreeing to refinance. Therefore, be proactive in financially difficult times.
Once you know you cannot afford a mortgage payment, contact your lender. Explain your financial situation with evidence to back up your claim. "You can come up with a letter from your doctor explaining why you won't be able to work for the next 60 days," said Sean D. Stockell, CEO of Financial Fitness, creator of home resource website Your Home 1 Source.
Suggest a monthly dollar amount that you can pay each month. You have an important advantage on your side, says Jason van der Brand, founder and CEO of San Francisco-based mortgage company Lenda. “Most banks don't want to seal off your house. But you have to be willing to answer tough questions when trying to borrow at a lower interest rate, ”he says.
The refinancing provider checks your credit history. So, keep your credit score as high as possible by paying all of your minimum debt payments like credit cards, car payments, and of course, your mortgage.
This is difficult when money is tight, but it can make a difference in making you a more attractive candidate for a mortgage refinance. Talk to business and other creditors. Some allow you to delay payments without reporting an official payment default on your credit report.
Refinancing options in a financial emergency
If you are still creditworthy, you may have some options to reduce your mortgage payments by refinancing.
These options are best for those with sustained income but a different type of financial hardship, such as medical bills. The reason for this is that you will likely need to communicate your current income situation to the lender.
The lender needs to be able to determine that once the refinance is complete, you will have sufficient income to make the payments.
1. Exchange of a fixed price for an ARM
You may be able to switch from a fixed rate loan to an adjustable rate mortgage (ARM) with a much lower interest rate.
ARM rates are typically much lower than fixed mortgage rates, which can help homeowners save big. How Much Money Per Month Could Refinancing An ARM Save?
Someone with a $ 250,000 mortgage at 3.75% interest pays over $ 900 a month in principal and interest. This figure does not include property tax or homeowners insurance.
According to Freddie Mac's weekly interest rate survey of lenders across the country, the average 5-year ARM rate was nearly 2.55% in October 2021.
At this lower rate, the homeowner would cut their payment by $ 130 per month.
An ARM loan is not without risk. It is usually set between three and seven years and then adapts to current market interest rates.
But this type of loan could be a solution to temporarily reduce the high cost of housing.
2. Refinance into a longer term loan
In today's interest rate environment, many homebuyers are switching from a 30-year fixed-rate mortgage to a loan that will pay for itself in just 15 years.
While the interest rates are lower on 15 year fixed loans, the payments are higher. More capital is needed every month.
But your repayment term can also go the other way.
Homeowners with a 10, 15, or 20 year short term loan can refinance into a 30 year loan to reduce their payments.
The amount owed for two options is as follows based on the principal and interest on a loan amount of $ 250,000 and an interest rate of 3.5%.
15 Year Fixed Rate Mortgage: $ 1,37030 Fixed Rate Mortgage: $ 890
This homeowner would save more than $ 480 per month by extending the loan term.
The downside is that it takes longer to pay off the house. However, refinancing can be worthwhile if you can keep your home even in financially difficult times.
3. Use today's prices to lower your payment
Mortgage rates are hitting historic lows and not far from the all-time lows of 2012.
Today's interest rates offer homeowners in trouble to cut their payments even if they don't employ any of the other strategies, namely converting a fixed rate to an ARM or a short term loan to a fixed rate of t30 years.
For example, if rates are close to 3% and some homeowners are still having prices in the 4's or 5's, they could cut their housing costs significantly.
Below is an example of potential savings.
$ 250,000 4% mortgage: $ 955 $ 250,000 3% mortgage: $ 840
Some households believe they cannot refinance themselves because of property value.
However, real estate prices have risen nationwide. As a result, many homeowners have gained enough equity to refinance – even if they made a small down payment.
Check with a lender to see if you are eligible for a refi.
4. FHA loans and VA loans can qualify for streamlined refinancing
Most refinancing options require adequate income, but there are exceptions.
FHA Streamline Refinance is ideal for homeowners who currently have an FHA loan and want to reduce their payment.
The FHA streamline does not require an income verification. You may need to provide evidence that you are still employed, but there is no need to verify your income from that work.
And no appraisal is required. If the home has depreciated, the lender can still approve your refinance.
VA Streamline refinancing also does not require an expert opinion or proof of income. And you don't have to view your bank account balances.
These loans are currently available to almost any homeowner with a VA loan. VA rates are lower than traditional, which means significant savings can be made. Check with a VA approved lender even if you are unsure whether your current loan is VA secured.
Lowering your mortgage payment when refinancing is not possible
In addition to classic refinancing, there are other options for ailing households. Government programs and lender workouts can also help.
1. A loan modification can be an option
The loan modification helps homeowners lower their monthly mortgage payments, but without the income verification required with traditional mortgage refinancing. The total amount you owe does not change, and a loan modification does not replace your current mortgage.
Instead, lenders can adjust the terms of a loan by lowering the interest rate or extending the payback period to make mortgage payments more manageable when you are unable to refinance due to a loss of income or other financial setback.
In most cases, to qualify for a loan modification, borrowers must have missed at least three mortgage payments and have evidence of financial hardship.
Flex Modification is one such loan modification that helps homeowners with a Fannie Mae or Freddie Mac mortgage avoid foreclosure by reducing monthly payments by up to 20%.
2. Rent out your home
The rental market is strong in many regions of the country due to the shortage of housing.
This option works well if you have another apartment for a short period of time, possibly with a relative or friend.
You may even be able to ask for more than you pay for your monthly mortgage payment. This would further help you make up for lost income or additional expenses.
If you don't have a place, consider renting a room or a furnished basement. You probably won't make that much, but you can have enough financial support to cover the mortgage.
Before you proceed, make sure your insurance agent says you have adequate insurance coverage. Thoroughly examine everyone you rent to and let tenants pay for or part of the payments for water, heating, electricity, and garbage disposal.
3. Consider selling
Selling your home might sound drastic, but it's better to be proactive and sell when the market is strong. In the long run, if you don't think you can make the payments, it is better to sell your finances and your credit.
In this scenario, you might also be able to move in with the family. More and more multigenerational members are doing this. And you benefit from some nice advantages: You share the cost of living and take care of younger and older family members.
Is Refinancing Without an Income Check Really an Option?
While common in the years leading up to the 2008 financial crisis, incomeless verification loans have now become specialty products that are no longer widely available to homebuyers.
Some borrowers may still be eligible for a mortgage with no income verification, but it is not a mortgage refinancing solution for those who have lost incomes. Rather, self-employed borrowers, retirees, 1099 employees, or real estate investors with complex incomes who require a simplified underwriting process can qualify for a refinance with no income verification.
How does an income verification mortgage work?
A no-verification refinance, also known as a no-doc mortgage or reported income loan, is a loan program that eliminates the need for mortgage lenders to verify a homebuyer or borrower's income.
Rather than providing lenders with tax returns, bank statements, pay slips, W-2 forms, or other income documents, the income-free refinance uses factors like home equity, available assets, and general cash flow to determine eligibility.
There are different types of no income check mortgage or no document loan, and each has its own set of guidelines.
Types of loans without income verification
Declared Income / Verified Assets (SIVA)
A Declared Income / Verified Property Loan allows borrowers to declare their gross monthly income in the loan application but only requires verification through use of bank statements, pay slips or other income documents.
Declared Income / Declared Assets (SISA)
Lenders use stated income / stated property loans to allow borrowers to declare income without verification.
While SISA loans were common in the early 2000s, these types of home loans are often only used for investment property after the housing bubble burst in 2008.
No Income / Confirmed Assets (NIVA)
A no-income / verified asset loan can be used when a borrower has verifiable assets but no income documentation.
For example, a retiree may not have verifiable proof of income, but their assets can be verified by mortgage lenders.
No income / no assets (NINA)
Borrowers who are able to obtain a no income / no assets loan are typically unable or unwilling to provide proof of income to a lender or mortgage broker, e.g.
Instead, borrowers file a statement confirming their ability to make mortgage payments.
Because they are more at risk, mortgage lenders often apply higher interest rates on NINA loans than they would on a prime mortgage loan.
Get a cheaper mortgage. Check today's prices
Today's refinancing rates are low enough to help you lower the cost of housing and get a cheaper monthly mortgage payment.
Request an offer for your refinancing now. Interest rates are near the 2-year lows but may not stay that low.
Confirm your new plan (October 21, 2021)