How to Refinance When Behind in Mortgage Payments

If you are behind in your mortgage payments, you may be able to refinance your loan, depending on who owns or guarantees it and the circumstances surrounding your financial distress. For instance, the federal government made refinance and modification options available to struggling homeowners through the Making Home Affordable Program in 2009. Under the program, borrowers in arrears may qualify for a loan modification, but not a refinance. Other loans, including those insured by federal government agencies, such as the Federal Housing Administration (FHA), may be refinanced if you meet certain criteria. In general, once you've missed payments, eligibility for refinance depends on various factors.

Find out who owns your loan. If you acquired a conventional home loan, such as a mortgage not insured by the FHA or Veterans Administration, then your loan is likely owned by the major loan guarantors, Fannie Mae or Freddie Mac.

You may be eligible for the Home Affordable Modification Program (HAMP) if you're behind on one or more payments, you occupy the home as your primary residence, you owe $729,750 or less on the loan, you have a financial hardship or your loan payments have increased, you acquired the loan before Jan. 1, 2009, and your total mortgage payment exceeds 31 percent of your gross monthly income.

Contact your mortgage company by phone or in writing about your interest in modifying your loan through HAMP. A loss mitigation/loan modification specialist will conduct a preliminary interview by asking a series of questions about your finances. You can locate your mortgage company's phone number or address on your mortgage payment statement or coupon.

Gather and send the supporting documentation your lender requested. This generally includes, but is not limited to: the most recent income tax return with all schedules and W-2s; two most recent bank statements; two most recent pay stubs (or other documentation of income if self-employed); mortgage statements for other loans on your home; a list of account balances and minimum monthly payments due on all of your revolving credit, loans, or family support obligations; a list of all monthly expenditures not reflected by your credit report (insurance, utilities, groceries, gas, entertainment); and a letter explaining your financial hardship.

Contact your current lender or a different FHA-approved lender/broker to pre-qualify for the FHA Streamline refinance if you have an FHA-insured mortgage. Borrowers who "skip payments" on their mortgage are ineligible for FHA's other rate and term or cash-out refinance options. The streamline refinance process is an expedited refinance that requires minimal paperwork and credit qualifying and allows up to a 97.75 percent loan-to-value. The loan-to-value ratio expresses the mortgage debt as a percentage of the appraised value of the property.

At the time of application, you must not have missed payments within the past 12 months if you've had the loan for more than one year. If you've had the loan less than one year, you must not have any missed payments.


  • The most common reasons for refinance ineligibility include: loss of job or income, the home is worth less than the balance owed (negative equity), and the lender requires you to be current on your mortgage payments for at least the past 12 months. The federal government's Making Home Affordable program offers a refinance option for borrowers not yet in arrears on their mortgage. If you are not yet behind on payments but worry that you will be, and your mortgage is owned/guaranteed by Fannie Mae or Freddie Mac, contact your mortgage company or the HOPE hotline at 888-995-HOPE (4673) to see if you qualify for the Home Affordable Refinance Program (HARP). Steps 2 and 3 are interchangeable. You may collect the information in Step 3 before contacting your lender so you have the figures needed for pre-qualification. This is a good option for those with many monthly obligations, or those who don't handle the household finances directly and therefore must reference the documentation. Locate an FHA-approved lender through the Department of Housing and Urban Development's (HUD's) website on the FHA Lender List.


  • If you can't refinance with your current lender or another lending company, and choose to seek advice or options to avoid foreclosure from third parties, beware of foreclosure rescue scams. Con artists target homeowners in your position, warns Making Home Affordable. Signs of a scam include: up-front fees for counseling or modification services, pressure to sign over the deed to your home, or a directive to make your mortgage payments to some entity other than your mortgage company.