Yes, rates are low. And if you are paying over 6% on your mortgage, you should probably look into refinancing and saving some money. However, not everyone who could benefit from refinancing will be able to do so. Here are three reasons you may not be able to refinance--and what you can do about them.

Featured Home Equity Loan Provider
    • Get your Free Quote in Minutes!
    • Lenders Compete for your Business
    • Lock in a Low Fixed Rate Before Rates Increase!
    • Do you have the Lowest Rate Possible? Find Out Instantly!

I. Your Mortgage Is a Stated Income Loan
Many people chose stated income mortgages in the past, for many reasons. Some had businesses that were making a lot more money than they had done in the past--and conventional underwriting would not allow them to count all of that income. Others had businesses with very long cycles, like property developers--a lot of money goes out for a long time before the profits come in, and normal underwriting isn't equipped to deal with it properly. Some people have income that is hard to prove--ever try to get canceled support checks from an uncooperative ex? Finally, some were just "optimistic" about their income and, um, "exaggerated" it to get a bigger house--and a big payment that they're stuck with now.

But whatever your reasons for taking out a stated income mortgage, you won't be able to refinance with one. For now, those programs are rare-to-non-existent. What can you do? If you get support income, make copies of every check when you get it, and deposit it separately from any other funds. If you have business income, keep very careful records, and in time your financial statements should reflect your cash flows. Make sure that your tax returns show all of your income. And you can always amend your previous returns too. Even to get a loan modification, you have to prove your income--start bringing your finances in line now.

II. Your Property Value Has Tanked
You bought your home with a solid down payment, and expected its value to grow over time. But so far, its value has dropped instead, and your down payment went into a black hole somewhere. You don't have enough equity to refinance, and it's frustrating--you could save a lot of money if you could just get the interest rate down.

Have you tried playing the HARP? The Home Affordable Refinance Program was designed to help people with your problem get a refinance. If your current mortgage is with Fannie Mae or Freddie Mac (click HERE to see if it is) and the property is a one to four unit home and is your primary residence, you can refinance up to 125% of its current value. And if you didn't need mortgage insurance when you bought your home, you won't need it now. If you currently have mortgage insurance, you need the same coverage that you currently have. The challenge is that MI companies are reluctant to write these policies; you will have to get your current policy holder to rewrite it.

III. Your Credit Is a Mess (and Underwriters Are Pickier!)
You were able to get your loan approved before (barely) but since then you may have lost a job, had a medical crisis, or your credit lines were cut just when you needed extra cash for an emergency. Anyway, your credit score is at a lowly 600, just when lenders have raised their minimums to 700. You can't qualify for a better loan right now. Except maybe you can. FHA lenders are still making loans--to 96.5% of your home's value (85% for cash out refinancing). You'll have to prove that you have enough income, and any financial difficulties need to have been put behind you, but a 600 credit score won't stop you from getting an FHA refinance. Check to see if your loan amount falls within FHA loan limits in your area.

If you can't refinance now and are barely hanging onto your home, modification may be the answer. Even if you don't qualify under the Home Affordable Modification Program (HAMP), your lender may work with you to keep you out of foreclosure. Call your lender and plan to hang in there for some time. Here are the rules that some lenders use when determining if they are going to help you out.

  1. You have to prove your income and declare your assets. Just like qualifying for a home loan, you have to qualify for a modification. If your mortgage payment isn't more than 31% of your gross income, you won't get a modification. If you have any assets like investment accounts, or even retirement money, you'll have to use them to keep up with your mortgage payments before you'll get help from your lender.
  2. If you have equity in your home, you are less likely to get a modification. If a lender can recoup its money by foreclosing, it will probably choose to do so. But if you have equity, perhaps selling or refinancing is a viable option.
  3. You have to have enough income to make a modified payment. If you are unemployed or underemployed, and dropping your interest rate to 2%, stretching out your loan term to 40 years, and even reducing the principal to no less than the proprty is worth won't get your payment down to 31% of your gross income, the lender is likely to cut its losses and foreclose.

For those who can't refinance and can't get a modification, credit counseling or bankruptcy are options. If you could make your housing payments but not your other payments, and they aren't tax debt, child support, or things like government-backed student loans, you might be able to get yourself out of trouble with a Chapter 7 or 13 filing. Check with a reputable attorney or credit counseling service to find out.