How to Refinance With Late Payments

If you've had trouble making your mortgage payments on time, a refinance can be challenging to arrange. Late payments are a red flag to lenders, and if the mortgage falls behind 30 days or more, few will be eager to take on the risk of loaning you the necessary funds. Ironically, it's sometimes easier to refinance if you've fallen way behind on your mortgage than it is doing so after just a late payment or two.

Limited Options

Having a recent late payment on your mortgage limits your refinance options. Some lenders require you to wait a year from your last late payment before being eligible for a refinance. You're not eligible for an FHA streamline refinance if you've had a late payment in the past three months, or more than one 30-day delinquency in the past year. To be eligible for HARP, you have to be current on your mortgage, with no 30-day delinquencies in the past six months and no more than one in the last 12 months.

Tip

Ramez Fahmy of Caliber Funding notes that recent mortgage payments that are 30 days or more delinquent will cause a lender to hesitate.

Your best option for refinancing in that scenario is, first of all, to get current on your loan. Making a few months of on-time payments lowers your risk profile and boosts your approval chances. Be prepared to explain why the delinquencies occurred and why that situation is no longer a concern. For example, if you had medical expenses that caused you to fall behind, that may be more convincing to a lender than a stack of credit card bills.

HAMP Loan Modification

You might qualify for the Making Home Affordable Modification Program, or HAMP, if you meet the qualifications and your loan has been guaranteed by Fannie Mae or Freddie Mac. It's designed to provide "deep and meaningful savings" for homeowners unable to make their payments. You may be eligible if you are behind on your mortgage, or in danger of falling behind, and you obtained your mortgage on or before Jan. 1, 2009. You can owe up to $729,750 on your mortgage and still qualify.

Tip

The MakingHomeAffordable.gov website, a program from the Treasury Department and the Housing and Urban Development Department, notes that a loan modification requires effort from the homeowner in taking the time needed to work through the process. You'll also need to assist your mortgage provider as much as possible and respond to any requests for information and additional documentation.

To apply, you'll work directly with your lender. The exact process and documentation required varies based on lender policy, but in general to apply for a HAMP refinance you'll need to provide:

  • Your monthly mortgage statement, as well as information on any other mortgages on your home, if applicable
  • The two most recent pay stubs for anyone in the household contributing to the mortgage payment. If you're self-employed, be prepared to provide the most recent quarterly or year-to-date profit and loss statement
  • Documentation of any income you receive from other sources, including unemployment insurance if applicable
  • Tax returns dating back two years
  • Your two most recent bank statements
  • A utility bill showing your name and the property address
  • Account balances and minimum monthly payments due
  • Information about your savings accounts and any other assets
  • A letter that describes any extenuating circumstances that caused you to be unable to afford the mortgage payment, such losing your job or suffering a long-term illness

You'll also need to provide the Request for Mortgage Assistance and IRS Form 4506T-EZ or Form 4506T, depending on your situation. If you qualify, your mortgage lender will work with you to rework your loan to secure more affordable payments.

Tip

If your lender refuses to work with you for a HAMP modification and you think they are doing so unfairly, call the Homeowner's HOPE Hotline at 1-888-995-HOPE.