Is It Worth Refinancing My Mortgage?

Q: Is it worth refinancing my mortgage? Last September I tried to refinance my home with my lender. I had lost my current job and started running a small landscape business I previously had. The agent working with my lender told me about a loan product with no income verification.

There was a problem with the appraisal and the loan officer indicated that there would be no problem as he could proceed based on the “valuation” of the property and the income I received from the rental portion of my home. Any ideas how I can get my loan refinanced?

A: Based on the very little specific information in your letter, it’s going to be hard for you to find a lender to refinance your home. I’m not sure what loan “program” your lender is trying to get you for you. You should know that “no income verification” loans died a couple of years back with the bursting of the housing bubble.

The only no appraisal loan product we know of is for those borrowers with FHA or VA loans. The lender is empowered to do a streamline refinance for FHA or VA loans which basically consists of lowering the interest rate. No appraisal is pulled.

But if you don’t have an FHA or VA loan, you’ll have a tougher time. It appears that the person you spoke to for a loan felt that your income was not sufficient to qualify you for a loan. He or she might have thought that you might qualify for a loan at a higher interest rate with a lender that would not “look” at your income. However, I would be quite surprised if a lender today would give you a loan without looking at your income in great detail.

As you have lost your job and are now working in your own business, it won’t be easy to find a lender to overlook your job situation. If you are self-employed, lenders will want to see a two year track history of your self-employment to get a good feel as to whether you will have the ability to make your monthly payments under the new loan.

I suspect that your new loan might not have been much better than your current loan when you reviewed the terms offered to you by your new lender. If the reason you wanted to refinance your loan was due to your loan becoming a variable rate loan after five or seven years of being a fixed rate loan, you might want to review your loan documents again.

Most loans taken out around five years ago were tied to an index rate. Most of those index rates have come down drastically. You may find that your monthly mortgage payment will go down once your loan adjusts with the new index. If your rate does go down, you may want to wait, have your income in your new business stabilize, wait a year or so and then apply to refinance your loan to lock in a rate for years to come.

However, if your original loan was locked in at a low payment and is soon going to readjust and your payments may skyrocket, you might want to call your existing lender and see if they have any loan modification plans that may meet your needs. You’ll need to keep in mind that most people that apply for loan modifications with their lenders end up getting denial letters.

One final note regarding your question, if your home’s value has gone down significantly, you probably won’t find a lender willing to give you a new loan unless you have cash to pay down the loan balance you currently have.

[ad#in_content_1500]For example, if you purchased your home for $200,000 and had a loan for $160,000 and now your home is worth $150,000, most lenders won’t want to give you $160,000 again. They will base any new loan on the home’s current value and will give you the best deal at 80 percent of the home’s value or a new loan at $120,000. That would mean you’d have to pay down your debt by about $40,000.

Since most borrowers don’t have that kind of cash lying around, it makes it quite hard to refinance a loan under those circumstances. Even though there are some loan modification plans that allow you to refinance even if your home value has gone down some, those plans only work if your new loan is going to be at most 125 percent of your home’s value on the date you refinance.

If you fall into this category and your loan is owned by Fannie Mae or Freddie Mac, you might be in luck. Talk to your loan servicer and see if they can provide you with details.


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