I lost my job three years ago and my unemployment has run out. I've been trying to refinance with a no-cost mortgage and without increasing my debt. My loan servicer does not do refinancing and refuses to lower my interest rate. What can I do?
Your situation is very difficult because, without income, a lender cannot demonstrate that the loan will be affordable to you.
Let's imagine that a lender will allow up to 28 percent of your income to be used for principal, interest, taxes and insurance – known as PITI. Let's also imagine that a lender will allow up to 36 percent of your income to be used for PITI plus recurring monthly debts such as student loans, car payments and credit card bills. These formulas make a lot of sense, but they assume that the borrower has enough income to make them work.
For unemployed borrowers, one option might be the Home Affordable Unemployment Program. However, there's a very big catch to the government's unemployment assistance effort: Among other requirements, you must be both unemployed and eligible for unemployment benefits.
A second hitch is that there's a three-month trial period in which mortgage payments must be made in full and on time. Miss a payment and you cannot continue to participate.
An alternative is the $7.6-billion Hardest Hit Housing Markets Fund. Eighteen states provide assistance under this program, but the requirements vary. In California, for example, you can only gain access if your servicer participates in the plan.
If your servicer does participate, then California offers such options as nine months of mortgage payment assistance, principal reductions and reinstatement programs for those have not been making their payments.
It can't possibly hurt to contact assistance programs to see if you qualify. If not, ask if they can recommend resources in your area. Another option is to contact your state’s attorney general because they often work with lenders and programs.
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