How to Refinance While on Disability

If you've been put on permanent or temporary disability from your job, you can still refinance your existing mortgage loan to take advantage of lower rates. You have two options: If your monthly income with your disability payments is high enough so that your total monthly debt, including your new mortgage payment, is less than 36 percent of your monthly income, you can qualify for a standard refinance. If it's not, you can ask your mortgage lender for a loan modification to lower your interest rate, in effect giving you the lower monthly mortgage payments that a standard refinance would provide.

Things You'll Need

• Copy of your current mortgage statement
• Copies of your two most recent disability checks
• Proof of additional monthly income, including rental checks
• Copies of your credit-card statements that show how much you owe and your minimum monthly payment
• Copies of your student, car and other loan statements
• Copies of your two most recent federal income tax returns

Instructions

1. Find the financial paperwork that you'll need to send to your mortgage lender to begin the refinance process. This includes a copy of your mortgage statement, copies of your two most recent disability payments, copies of your two most recent federal income tax returns, copies of your credit-card bills, and copies of statements from any other loans, such as student or car loans.

2. Call your mortgage lender at the number listed on your current mortgage statement. Explain that you are on disability but that you'd like to refinance your mortgage loan. If you are having trouble making your mortgage payments because your income level has dropped, tell your lender.

3. Give your lender permission to run a check on your credit. This will produce your three-digit credit score. Lenders rely on credit scores to determine if a borrower is a risky bet or or safe one. Borrowers with scores of 720 or above will generally qualify for the lowest interest rates.

4. Give your lender the OK to order an appraisal of your house. You'll have to pay about $400 to have an appraiser determine your home's current value. You'll need this even if you have an existing county appraisal for tax purposes on your home. This is an important step: You'll need to have equity in your home to qualify for a refinance. If your home has dropped in value, you might not have this equity.

5. Send your lender the documents you gathered in Step 1. Your lender will look at these to determine if you have the financial means to make your new payments should a mortgage refinance go through.

6. Ask for a loan modification if your monthly income with your disability payments isn't high enough, or if your home's appraised value is too low to qualify you for a refinance. Your lender, at its discretion, may lower your monthly interest rate, lower the principal balance on your loan, or change the terms of your loan to provide you with a lower monthly payment. You generally have to be struggling to make your mortgage payments, though, to qualify for a loan modification.

7. Sign the closing documents to make your refinance official if your lender approves you for one. You and the lender will set a closing date to do this.

Tips & Warnings

• Call around to several mortgage lenders if your current one does not approve you for a refinance. You are not required to work with your existing lender to refinance your home loan.

References

• Federal Reserve Board: Consumer's Guide To Refinancing
• myFICO.com: How Your Credit Score Is Calculated
• SmartMoney: Should You Refinance?