Refinancing A Mortgage Loan Without A Job

Q: We would appreciate your advice on a challenging real estate situation we’re facing.

My husband bought a rental property in 2005 using a first and second mortgage. The property has since dropped in value and we now owe more than it will appraise for – not the first you’ve heard of that I’m sure.

The first mortgage is at 9 percent and the second is at 12 percent. These are horrendous loans that he’d be able to refinance out of within 5 years except the bottom fell out of the market.

We have tried for over a year to get someone to work with us to refinance these loans and have gotten absolutely nowhere.

My husband has been without a paycheck for six months, and we are reaching the point where we will have to either face foreclosure on this rental, thus ruining our credit, or sell it at a significant loss to a wholesaler and still owe on the property loans.

Again, because of a lack of income for months, we have significant debt-to-income ratios that will also make getting a loan nearly impossible. Do you have any suggestions on a way to refinance this property so we can avoid a complete collapse of our personal finances?

A: I’m sorry, but I don’t have any easy answers for you. Without an income, you won’t be able to get any conventional lender to refinance your loans.

Worse, this isn’t your primary residence. It’s a rental property and there are fewer lenders willing to give loans on investment properties these days, or modify the terms of an investment property loan.

If you or your husband was employed, and your home had some equity, you could try a regular lender. But lenders who finance investment properties typically require a down payment of 25 percent in cash (at a minimum) – it’s tough to meet that requirement if your savings is running dry. (Some investment lenders are now requiring even forty percent down to finance or refinance investment properties.)

Although I don’t often recommend this, you and your husband need to seriously think about not paying any more on this property and simply turn it over to the lender and try to negotiate a deed-in-lieu or short sale. Hire a good real estate attorney who may be able to help you resolve this more easily. But you can count on ruining your credit for the next few years.

Unfortunately for some, the fastest path back to financial security may be to cut your losses now and then work towards rebuilding your future. For some, that may mean filing for bankruptcy. For others, that might mean resetting your priorities as to where your money should go.

While some people may find another job and continue to make payments to their lender, others may see it as necessary to stop paying the lender and try to get out from under the debt burden brought on by a bad investment decision.

I’m so sorry.