With the HARP 2.0 now up and running and the new FHA streamline program being announced more and more borrowers are able to refinance than ever. (If you would like to learn if you qualify for one of those programs just contact us in the form on the right.) But in spite of the government-backed refinance loans that are becoming available, some people cannot meet the qualifications for a refinance. When a borrower cannot qualify for a refinance they can either work to overcome the hurdles keeping them from qualifying or they can plead for a loan modification from their current lender. Contact us in the sidebar if you are not sure what route you should take on this.
Hurdles to refinancing:
-
1. More than one 30 day late mortgage payment in the last 12 months
While this used to be a universal deal breaker, the HARP program is now becoming more lenient on recent 30-day late payments. An FHA streamline is still possible as long as it is only one late mortgage payment in the last year.
2. Credit scores that are too low
This does not apply to HARP 2.0 loans. We recently saw a person with a 535 credit score get approved for a HARP 2.0 loan. But for FHA streamlines, VA streamlines, and other loans, you normally need decent credit scores. If you have credit troubles, we can give you some referrals/advice on how to improve your credit scores.
3. You owe more than the home is currently worth and you don’t have a Fannie, Freddie, FHA, or VA loan now.
The good news is that whether you know it or not, you probably do have a Fannie, Freddie, FHA, or VA loan now. The majority of first mortgages in the country are one of these. Contact us if you don’t know what type of loan you have now.
4. You do not currently have sufficient income to support your debts (and you don’t have an FHA or VA loan now)
If the combined monthly payments on your debts/loans is more than half of your family’s gross monthly income qualifying for a refinance can difficult. However even this requirement is loosening with the HARP 2.0 program. And the debt to income ratio requirement has been done away with entirely for most folks with FHA or VA loans.
Pros of loan modifications:
A “loan modification” is the process in which a lender lowers your payments by some combination of reducing your interest rate or in some other way agrees to improve the terms of your current loan. The incentive lenders have to modify mortgage loans is that foreclosing on a borrower is a very expensive proposition, so keeping a delinquent borrower in the home is sometimes a financially prudent thing to do — especially if the borrower is underwater on the loan (owes more than the home is worth).
Cons of loan modifications:
a. Loan modifications are often temporary. For instance the lender might lower interest rates for just a few years with the understanding the interest rate will revert back after that time.
b. Lenders and loan servicing companies are under no obligation to modify your loan. Unless there is something in it for them to modify a loan banks often choose to ignore or deny loan modification requests.
c. Borrowers must normally be a few months behind on mortgage payments to even be seriously considered for a loan modification.
By contrast, if you can qualify for a refinance you have more control over your situation and would not be at the mercy of your current bank. When you refinance into a 30-year fixed loan you don’t have to worry about terms changing over the life of the loan.
What if you need a loan mod and your lender isn’t cooperating?
If you have already sought a loan modification and your lender ignored or rejected your loan modification request you could consider getting assistance from a professional loan modification firm. Such companies seek a loan modification on your behalf for a fee. Legitimate loan modification firms offer to use their legal expertise along with their contacts to overcome barriers the banks put up to consumers in obtaining loan modification. However, they often don’t offer much more than a way to save borrowers the hassle of getting a modification themselves. (For more info see here)