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 remaining option to improve mortgage loan terms is usually for the borrower to seek a loan modification from their current lender. (See the bottom of this page for ideas on what to do if your lender ignores or denies your loan modification request.) In addition, we sometimes find that the easiest and quickest way to ease overall monthly payments is by working on credit card debts so contact us for advice and referrals on how to best do that.
Things that will disqualify borrowers from refinancing in the current lending environment:
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1. Late mortgage payments in the last 12 months
(This means payments more than 30 days late)
2. Credit scores below 580
(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 the amount you owe on the home
(This is true unless you already have an FHA mortgage — if you have an FHA loan you may be able to refinance no matter how underwater you are.)
4. You do not currently have sufficient income to support your debts
(If the combined monthly payments on your debts/loans is more than half of your family’s gross monthly income qualifying for a refinance is unlikely.)
If any of the above apply to you a refinance probably is not possible right now. However even if you can’t refinance into a new loan you can still seek a loan modification so contact us for advice about that. In addition, we can recommend other strategies to reducing monthly burdens and overall debts when you contact us in the sidebar.
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 borrower in the home is often a financially prudent thing to do — especially if the borrower is “underwater” on the loan (owes more than the home is worth).
Unlike refinances, loan modifications are normally free if you can obtain one directly from your lender. See here for an idea of possible fees rolled into refinance loans.
Cons of loan modifications:
a. The modifications are sometimes temporary in nature. 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. They often choose to ignore or deny loan modification requests.
c. Borrowers must normally be at least 30 days behind on mortgage payments to obtain a loan modification.
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 you need a loan mod and your lender isn’t cooperating?
If your lender ignores or rejects 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. (These fees can vary but are almost always lower than refinance fees.) 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. Contact us if you would like to discuss your situation with a professional loan modification company and we can provide a referral. In addition we can recommend strategies to ease credit card burdens or from other debts when you contact us.
