The health of the economy dictates the answer to the question, "How do I negotiate a mortgage refinance if I lost my job?" It's much easier to obtain a refinance during a bull market. Of course, job losses happen more frequently during bear markets.
Answer to How Do I Negotiate a Mortgage Refinance if I Lost My Job?
Mortgage lenders do not want to lend money to people who are out of work. A private lender may be the only option. When times are tough, a better question to ask might be, "What else could I cut from my budget in order to be able to continue paying the mortgage while looking for a new job?" The energy that you want to put into negotiating a refinance may be better directed toward a job search.
Consider Other Options
While you're looking, there are probably ways to trim other expenditures from your monthly budget. Consider renting out at least one room of your home to help pay the monthly mortgage costs. You could structure it as a month-to-month sublet, and plan on terminating the lease after you regain full employment.
Uphill Battle
That's probably not the answer you wanted to hear to the question, "How do I negotiate a mortgage refinance if I lost my job?" In any type of economy, it's an uphill battle to ask for a refinancing when you're unemployed. It's harder than it used to be to qualify for a mortgage, even for employed people. Mortgage lenders are much stricter about their criteria for loans as a result of huge losses suffered to defaults. Adding insult to injury, interest rates have fallen to historic lows, which may be great for borrowers but banks have a hard time making money on loans with tiny rates. Despite efforts by lawmakers to spur lending, low interest rates act as a deterrent to mortgage bankers. As soon as rates go back up again -and they likely will once the economy improves- banks will lend more money because it will be easier for them to make a profit. By the time that happens, you might have found another job.
Provide Valid Information
Mortgage lenders don't look favorably upon unemployment. Unfortunately, there is no way you could fudge your employment status on an application to refinance your mortgage. Not only do most lenders no longer grant loans without documentation, but fact-checking has become the norm. Supplying a pay stub from your former job won't work because lenders will call your former employer to confirm whether you actually work there. Even if you have a severance package that will cover your expenses for several months, lenders will find out that you've been terminated.
Spouses and Cosigners
You may have a chance at renegotiating if you have a spouse or domestic partner who is employed. An alternative to this would be a cosigner willing to back you up on the mortgage refinance. The best candidate for cosigning is another relative.
Get a Smaller Home
Another alternative to seeking a refinance would be to sell your home and use the proceeds to rent a more modest dwelling than the one you currently occupy. If you own a sizeable portion of equity in your home, perhaps the proceeds of selling the property could purchase a more modest piece of real estate. If your monthly housing costs include homeowner association dues, consider moving somewhere that doesn't have such costs.
Real Costs
There are plenty of good reasons to talk yourself out of seeking a refinance right now, but the most important is the added expense. A mortgage refinance might seem like a cost-cutting option because of lower monthly payments, but over the long haul you end up paying more for your home after refinancing. You pay a new set of closing costs when you refinance and the duration of your mortgage gets stretched out over a longer period of time, slowing down the amount of equity you acquire in your home. Your acquisition of equity ownership is also slowed down by the fact that the first year of mortgage payments are mostly interest, rather than principal. The best way to see the cost disadvantages is to seek out a mortgage calculator online.
Refinancing May Not Be the Answer
The steep challenges facing anyone who wants to refinance their mortgage after a job loss could be blessings in disguise. Refinancing isn't the best course of action after a job loss. It is a good idea to save the refinance until a time when you're more attractive to lenders.
