It is a great question and one that has not been fully addressed yet by the government. In the past two years, most of the aggressive lending programs have disappeared making it harder for many consumers to refinance. Additional things like credit issues and unemployment have made the problem worse.
It is impossible to refinance your home if you are currently unemployed. Also, when the length of unemployment starts to reach a few months, it will begin to worsen your ability to get a mortgage down the road. When applying for a mortgage, a lender will look at your credit, assets and equity in your home. Assuming all of this checks out, the next thing that is evaluated is your employment. Just being employed is not a reason for an approval. The loan underwriter (the decision maker) will look at several things including length of time with your current employer, length of employment gaps and whether your current job is in a related field as the previous one. Many times, a perfect loan can be denied because the underwriter is not comfortable with employment history.
The best, and really only solution, for a person who has lost his job and looking to negotiate a lower mortgage rate, would be a loan modification. A loan modification can provide many of the same benefits that refinancing can. In addition, a loan modification is free. There are no upfront charges or closing costs involved, unless you decide to hire a professional service. With recent changes in the laws, many homeowners have simply elected to do it themselves. Since banks are very agreeable to loan modifications, it's only a matter of falling within the banks qualifying parameters to get an approval.
The parameters for qualifying for a modification are not the same as those used in a refinance. Credit, income, equity in your home and employment are not scrutinized in the way they are for a refinance. (A do it yourself loan modification guide can provide additional help). This does not mean that it will always be possible to obtain a permanent loan modification while currently being unemployed. It can provide a great short term solution during the rough patch where you have no income coming in and are searching for work. Many lending institutions will offer you a temporary forbearance. This is usually a reduction or complete elimination of your mortgage payments for a period of about three months. After that time, the lender will look at turning your forbearance into a modification, provided you have found a job.
So, if you are looking for way to negotiate a mortgage refinance if you've lost your job, a loan modification or forbearance will your best solution in the short term and eventually in the long run too.
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