How to Refinance Your Home in Spite of Challenges

by Barbara P. in Illinois, by Greta D. in Delaware, and more...

Ask Kate how to successfully refinance your home in spite of challenges: From senior citizens with underwater mortgages to refinancing your home after the short sale of a rental property. From getting rid of interest-only mortgages to modifying looming balloon payments.


Q 1: Senior Citizens with Underwater Mortgage

By Barbara P. in Chicago IL

Kate, thank you for your site. It is very informative! My question is I am 70 and my husband is 74. He retired at 70, only to return back to work in 6 months due to the money needs.

Our house was at one time worth $220,000. Now it is $150,000 at 6.5% and market price is $125,000, putting us underwater with no equity!

We do not want to become a foreclosure statistic, but we figure that less than a year with our saving and paychecks dwindling, we will be out of money and on the street.

I have made so many calls to anybody that will listen to give me some ideas on what we can do! They say 'Sorry, we can't help you!'

When I heard about the Harp 3 program, I got excited as it will be an answer to my prayer. Now I hear it might not be done until 2014. What is the scoop and do you have any ideas? I have also contacted my Congresswoman and am waiting an answer.
***zz-portrait-left.shtml*** Ask Kate answers: Senior Citizens with Underwater Mortgage

Hi Barbara,

When I read your letter, I wondered if the voice of homeowners has become a distant echo in Washington DC. Are they aware of the current struggles among countless borrowers?

I'm not giving up and I hope you won't either. We must make them sit up and take notice that the backbone of our economy (yes, I am talking about homeowners) needs support.

For years, FHA has stressed that owning a home is good for America. Homeownership contributes to the pride of cities, reduces crime, and stabilizes families.

With the collapse of the housing industry, the fact remains that owning a home is still good for America. That's why our leaders in the government need to wake up, listen, and take action.

I'm glad to hear you've written your Congresswoman. Send the same letter to your federal and state politicians. And if you can stomach it, I suggest you take your story to the media, even though I truly understand it would not be easy to go public.

I've suggested this twice before. You can read the first account at Home Mortgage Help for Disabled Veteran.

In case you missed it, an easy way to contact your state and federal elected officials is found at When Will Fannie Mae Allow True Mortgage Loan Modifications. (Scroll down to the bottom of the page for the 4 simple ways!)

We can't let them forget that homeownership is important to homeowners, the economy, and our country.

Here's to going public,


Q 2: Refinancing After Short Sale of Previous Residence

By Homeowner in Illinois

I moved from my previous residence 3 years ago and was finally able to sell it as a short sale. While I was trying to sell it, I also rented it for less than half the time it was on the market.

Now I would like to refinance my current primary residence, but was told I have to wait 3 years.

My credit is still 780 and I only want to refi 70% of the current appraised value which is the current loan amount. The new mortgage payment, including escrow, would be 20% of my income, and all debt payments would be 30% of my current income.

Is there any way to refi now? I am eligible for a VA loan as well.

I am also told that my credit report will show the short sale as a debt paid in full. So why would that impact my attempts to refinance my current primary residence?

***zz-portrait-left.shtml*** Ask Kate answers: Refinancing After Short Sale of Previous Residence

Refinancing is negatively impacted by a short sale for no better reason than lenders say so.

I could offer the maxim of he who holds the gold makes the rules. But the bottom line is that lenders believe homeowners with recent short sales are more apt to default on future mortgage payments.

I am happy to hear you still have a 780 credit score after short sale. Apparently this does not carry much water at the mortgage company. So I'd write a strong letter of explanation, explaining why the risk factors causing the short sale are no longer present and then shop for another lender.

In the meanwhile, take the first step to paying off your mortgage early by going to The Mortgage Freedom Project. Learn how to become independent of bank decisions forever!

Here's to getting the bank off your back,


Q 3: Underwater Interest-Only Mortgage

Hi Kate, I have an underwater, interest-only mortgage. I was hoping the HARP 3 refinance plan would benefit people like me. I pay my mortgage every month on time; interest rate at 6%; converts to principle and interest 6% in 2.5 years.

Is there ANY program or strategy for someone in my situation? Who should I lobby?

***zz-portrait-left.shtml*** Ask Kate answers: Underwater Interest-Only Mortgage

I thought you'd never ask! Lobby every elected politician in your state and federal districts. It's not hard. I linked to the instructions earlier but am happy to do so again. Scroll down to the bottom of this page: When Will Fannie Mae Allow True Mortgage Loan Modifications.

Here's to lobbying,


Q 4: Refinance with Poor Credit and Looming Balloon Payments

By Greta D. in Wilmington, Delaware

I have three rental properties with balloon payments due in June 2013. They are all tenant occupied. I can't refinance because of my credit and I haven't put them up for sale. I really don't want to sell them. I did get a modification for one property but trial period is only up to balloon date. Is it possible that the lenders might offer to extend the maturity date to avoid mortgage foreclosure.

***zz-portrait-left.shtml*** Ask Kate answers: Refinance with Poor Credit and Looming Balloon Payments

Hi Greta,

Yes, I'd encourage you to contact the mortgage servicers to begin your loan modifications.

In the past, modifying a mortgage was restricted to owner-occupied home loans. So if homeowners had rented a property, they were shut out of the program.

But with the launch of HAMP Tier 2, modifying a home loan was expanded to include investment properties.

The trial period being up at the same time as the maturity of your balloon should not be a problem if you are current on your modified payments. But stay in touch with your servicer so the balloon is not overlooked.

Credit issues should not be a major obstacle. For goodness sake, modifications are designed for credit impaired homeowners so don't let the lender make you feel bad!

Here's something else you should know. Many times the trial periods drag on forever, for the only reason that the servicer is back logged. So if at all possible, make timely modified payments and be sure to stay in touch with your servicer, even to the point of feeling like a nuisance.

The squeaky wheel is the only one getting any grease today.

Here's to squeaking,


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What Happened to Common Sense Refinancing?
by: Samantha from PA

Hi Kate, 16 months ago my husband and I were discharged from bankruptcy chapter 7. After the bankruptcy, we were able to keep our home.

The first mortgage is not being reported but the second is on our credit report. Since the bankruptcy we have opened some credit cards and been paying on time. We were also able to purchase a used car and got a loan.

Our mortgages combined are $2000 per month. With taxes, we pay $2700. I do not understand why we can't refinance when we pay so much. A new loan if we refinance would be about $600 to $700 less per month.

The banks are worried about us paying the mortgage because of the bankruptcy. But that make no sense if a person is paying $2000 per month. Common sense dictates that they can pay $1400 dollars per month.

What can we do to refinance and what banks should we try? With the $2000 mortgage payment, things are getting tighter as everything else is getting more expensive. Thank you.

Hi Samantha, Kate here...

I'm glad to hear how much credit re-establishment you've accomplished. Great job!

You bring up an excellent point for underwriters (the bank employees who approve mortgages) to consider about your refinance - Your lack of payment shock!

So write a letter and point out how the mortgage payment is going down at least $600 a month. It may seem obvious to you but include the fact that you are currently paying $2000 a month.

Include documentation (official bank records, for example) that show you pay the car loan on time and pay off credit card balances each month.

Create a budget, if you don't already have one, to show how easily you can afford the proposed $1400 mortgage payment.

But keep in mind, these steps may work better after 24 months have passed since the bankruptcy discharge. However, don't hesitate to run this past your mortgage originator. You won't know if you don't try.

Best wishes, Kate

P.S. The best way to find a lender (and I recommend local whenever possible) is to check with friends with recent successful refinancing experiences.

Since you'll still need to interview lenders who are referred to you, educate yourself first. Go to How to Reduce Mortgage Refinancing Costs for help.

Click here to add your own comment.

You can also ask Kate about your mortgage at Refinancing Advice The Nuts and Bolts.

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