It doesn't seem fair. You may have a history of making prompt payments, and have built a big ownership stake in your property. But if you lose your job, virtually no lender in the land will let you refinance your mortgage -- even though it means lower payments.
"No job, no loan. That's what it boils down to," says Paul Havemann, a vice president with HSH Associates, the mortgage publishing firm.
You could have $50,000 worth of equity tied up in your home and a 13 percent mortgage that could be refinanced into a single-digit loan -- sparing you hundreds of dollars a month in payments. You might also have an urgent need to take cash out of the property through refinancing. But if you're out of work, your chances are nearly nil.
"It's ironic, but one of the inequities of the mortgage market is that people who most need to refinance are the ones who can't qualify," Mr. Havemann says.
Why? Loans are predicated on your ability to repay, based on current income. It doesn't matter whether you're trying to refinance your first mortgage or obtain a second mortgage or home equity loan. Without current income, there is no loan.
As a result, some mortgage specialists suggest expediting any plans for refinancing or tapping the equity in your home if you believe your job could be in jeopardy.
"This comes under the heading of battening the hatches to weather the storm. If nothing else, you could reduce your monthly payment through refinancing. And if you take cash out through the new loan, you could lay aside a nest egg specifically for making mortgage payments," Mr. Havemann says.
Planning your borrowing is more important than ever these days, given the current lending environment, says Peter G. Miller, author of several books on mortgage finance.
"The old idea that you should borrow when you don't need the money is more true today than ever in the past," Mr. Miller says. "Today's lenders are just very conservative and very strict. In too many instances, they're in the business of not making loans."
Whether you're seeking to refinance through a classic first mortgage or contemplating a home equity line, the lender will want proof that you are currently employed (unless you're one of those rare individuals who has a strong income stream through investments).
Angelo Mozilo, president of the Mortgage Bankers Association of America, says many people don't realize that a new home loan would be off limits to them when they've lost their jobs. They imagine they could could get a new loan on the strength of their past credit and employment history.
It may seem strange that banks are unwilling to grant loans backed by your property. After all, if you default, the lender can take your house. But already burdened by large amounts of property acquired through foreclosure, lenders are less enthusiastic than ever about the idea of adding to their property inventories.
"We don't want to take back houses," stresses Mr. Mozilo, who is also president of Countrywide Funding Corp., a mortgage lending company.
Mortgage specialists offer these pointers:
* Don't lie about your employment status on a loan application. If you've been laid off, it's pointless to pretend that you're still working.
Obviously, lenders needn't do investigative work to find out whether you're working. One phone call or letter will usually tell the lender the whole story.
* Don't feel obligated to tell the lender rumors about the employment situation at your organization while you're still working there.
Lying on an application is foolish. But it's also foolish to make unsolicited confessions about potential problems involving your employer.
You may work for a shoe manufacturer that's getting beaten by foreign competition and has gone into the red. Maybe you've even heard rumors about layoffs. But unless
your own position has been axed, you needn't report your fears to the lender.
"You don't have to tell them that you're rearranging deck chairs on the Titanic," Mr. Havemann says.
* Don't make the mistake of thinking that you'll be spared rejection on your loan application simply because you're in a field with good employment prospects.
If you're trained as a health-care administrator and feel your status as an unemployed person is only temporary, you may be tempted to seek a new mortgage even though you're out of work.
But you're better off waiting until you've found a new job. Lenders don't differentiate among the unemployed on the basis of job prospects -- no matter what the field, says Mr. Mozilo of Countrywide Mortgage. Most lenders will reject anyone lacking a job.
Mr. Mozilo says, "If he's unemployed, we don't care if the guy's God."