In spite of the government-backed refinance loans that are becoming available, many people cannot meet the qualifications for a refinance. When a borrower cannot qualify for a refinance the best and often only remaining option to improve loan terms or lower payments is for the borrower to contact their current lender and ask for a loan modification. (See the bottom of this page for what to do if your lender does not agree to modify your loan when you request it.)
Things that will disqualify borrowers from refinancing in the current lending environment:
1. Late mortgage payments in the last 12 months
(This means payments more than 30 days late)
2. Credit scores below 620
(If you have credit troubles you can either try for a loan modification or we can give you some referrals/advice on how to improve your credit scores if you would like)
3. The current value of your home is less than 105% of your first mortgage
(A. This is true unless you already have an FHA mortgage — if you have an FHA loan we may be able to refinance you no matter how upside down you are.
B. If you have enough equity to cover your first mortgage but not your first and second mortgages combined you may be able to refi the first mortgage only.
C. When then value of your home is between 97% and 105% of your first mortgage it is best to contact your lender directly.)
4. You do not currently have sufficient income to support your debts
(Note: This debt-to-income requirement does not apply if you currently have an FHA or VA mortgage. Otherwise, if the combined minimum payments on your various debts/loans is more than half of your family’s pre-tax income a refinance can be difficult.)
If any of these apply to you unfortunately we cannot help you refinance your current loan right now. However even if you can’t refinance into a new loan you can still contact your lender and seek help with a loan modification.
Pros of loan modifications:
Loan modifications usually are free if you contact your lender directly. The idea is that the lender lowers your payments by some combination of reducing your interest rate or lengthening the term of the loan. The incentive lenders have to modify your loan is that foreclosing on a borrower is a very expensive proposition so keeping a borrower in the home is often a financially prudent thing to do.
By contrast there are always fees associated with refinances. See here.
Cons of loan modifications:
a. The modifications are sometimes temporary in nature. For instance the lender might lower interest rates for 5 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. They often choose to deny or ignore loan modification requests.
By contrast, if you can qualify for a refinance you have more control over your situation. 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 your lender refuses to modify your loan?
If your lender denies your loan modification request after you have made repeated attempts you could consider working with a reputable loan modification firm. Such companies seek a loan modification on your behalf for a fee (normally $2000-3000). They often can use their legal expertise along with their contacts to overcome barriers the banks put up to consumers at times. Beware that many disreputable companies have also sprung up recently, preying on the misfortune of American borrowers. Contact us if you would like a referral to a reputable company in the loan modification business. Reputable companies offer a written money back guaranty if they can’t get your loan modified.
