Our house is currently worth a little less than when we purchased it eight years ago. In the last eight years, my husband has been laid off two times. He is currently earning much less than when we purchased the house. I was a stay-at-home mom when we purchased our home, but since the first layoff, I have worked a couple of part-time jobs. I have a son and need to work around school and summer vacation, etc. I'm currently out of work and we have gone through all our savings and income tax refund. Now we're to the point where we won't be able to cover our expenses in the next month or so. We have no debt at all other than our mortgage. (No credit cards or car loans or anything). We have a balance of approximately 120,000 and 22 years left on our mortgage. We're older (my husband is 53 and I'm 48). My husband feels refinancing would be bad because of our age and how little equity we have. But because of the economy, we wouldn't get much out of our home if we sell (if we could even sell it). Would it be better to refinance and lower our monthly payment or try to sell even though we wouldn't make much profit? We really don't want to move, but I just don't know what we should do. I'm looking for work, but I really need advice as soon as possible. Thank you very much. Kim Palansky
Thank you for your detailed question. Choosing among refinancing your home or selling your home is not easy. I am going to suggest some other ways to approach your situation that I feel can help you.
If you want to start by seeing what kind of refinance loan is available, contact one of Bills.com's pre-screened lenders, to receive a free, no obligation refinance quote.
It sounds like your biggest concern right now is your fear about not being able to maintain your monthly mortgage payment, unless you find work very soon. If you cannot increase cash flow, you need to examine how you are spending your money, to see if there are any areas where you can reduce your expenses.
Have you ever made a budget? Lots of expenses that people feel are necessary are ones that they could actually live without. Do you need the kind of cable or satellite TV service you are paying for? Have you shopped around to find the cheapest cell phone package for your family? It is a great idea to analyze how you spend all of your money over a monthÂ’s time. Once you have all of your expenditures in front of you, it is easier to find areas to trim. Even what seem like small purchases can add up to a significant total at the end of the month. For instance, buying lunch on work days, dining out occasionally, and even buying a latte regularly ends up costing a lot more than it seems at the time the purchase is made.
In your case, the fact that you have no other debt, aside from your mortgage means that you are at least not running up credit card debt each month, which shows that you have discipline.
While it is important to contribute to a retirement plan, if your husband is currently doing so, it may make more sense to stop doing so temporarily, if those funds would give you a greater ability to maintain your mortgage payment. Also, if you get a tax refund each year, it may make sense to have less withheld from income in taxes, thereby increasing your monthly cash flow. Be very careful if you choose to alter your withholding, making sure that you do not lower it to the point where you will owe the IRS when taxes are due next April.
If you stay in your home, looking into refinancing your mortgage is a good idea, even if only to see what options you have. It is also a good idea to speak to a real estate agent, such as the one you used when you purchased your home, to get a good estimate of the current market value. There are also Web sites online, where you can get rough estimates of your home's value.
When shopping for a loan here are some things you need to be aware of.
It is likely not going to be easy for you to qualify for a loan, if you are not currently working. An important factor in qualifying is your debt-to-income ratio or DTI. Your DTI is calculated by dividing your total income by certain debts you have, such as your principal and interest mortgage payment, property taxes, and homeowners insurance (PITI); any credit card or unsecured debt payments; student loan payments, and any vehicle payments. If the monthly payments for those debts take up more than 45% of your income, you will not qualify for a loan.
In general, a lender requires that anyone on the loan has two been at the same job or working in the same industry for the past two years to have that income included in the qualifying income for a loan.
Your Loan to Value (LTV) is another important component for qualifying for a loan. Your LTV is calculated by taking the current market value of your home (what you can sell it for in todayÂ’s market) and dividing it by the balance on your mortgage or mortgages. Do not use the value that the property tax assessor has assigned to your property, as it does not necessarily reflect the price you would get if you were to sell your home today. The higher the LTV, the harder it is to refinance. Some lenders will not refinance a loan if your LTV is above 90%, others even lower. There are some loans available through what is called Refi Plus that go up to 105% of your LTV, if your loan is serviced by Fannie Mae or Freddie Mac. You can find information here about the Refi Plus program.
Lenders use your credit score as an important factor in determining if you will qualify for a mortgage and if so, whether you will qualify for the lowest rates available. Everyone should keep track of his/her credit score, because it will have an effect on home loans, car loans, chances to get personal loans or credit cards, landlords for judging the suitability of a prospective tenant, and even can be used by employers in evaluating job-seekers. If you check your credit score now, you can see where it is now and work on building your score, if necessary, in case refinancing or purchasing another home is something you want to do in the future.
Given what you said about your not working right now and your husband earning less than he did when you purchased your home, your DTI may prevent you from refinancing. Still, let us assume that is possible and talk about whether or not it is a wise decision.
Here are some factors for you to consider:
1) What will it cost to rent a comparable home or home that would suit your familyÂ’s needs, if you decide to sell and begin renting?
2) What is the difference between that rent cost and the amount you are paying for your PITI each month?
3) Although you do not have a crystal ball, do you think that your home is likely to appreciate in value?
You also want to factor in the tax benefits you receive currently for the interest you pay on your mortgage, if any. You currently have costs for the upkeep on your home that you would not bear as a renter. Also, there are costs involved in time, money, and effort in moving and you were explicit in your question that you do not prefer to move. All of these factors need to be weighed.
Assuming you do not qualify for a refinance and do not want to sell, here are some ideas.
A mortgage modification is where the lender is willing to change the terms of the original contract, such as the loan terms, interest rate, or payment. This could lower your payment to the level you can afford, but it takes time and effort. Some lenders are harder to work with than others. Bills.com has information on loan modifications covering the affect on your credit score to determining your home value.
The HAFA article covers the new federal guidelines under the Making Home Affordable (MHA) initiative, which oversees the Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternatives (HAFA) program. To see if you are eligible for the home affordable modifications the federal government has created an easy questionnaire to help you get started.
I hope this information helps you Find. Learn & Save.