It is usually impossible to refinance your mortgage if you have a delinquent HELOC on your property and the same guideline applies to any loan secured by the property including your mortgage or a home equity loan. In short, if you are delinquent on the HELOC or your mortgage, lenders question your ability to make your payments in the future and you cannot qualify for a refinance.
Ironically, the one lender who may be willing to work with in this situation is the HELOC lender. If you can demonstrate that refinancing your mortgage enables you to either pay off or bring the line current, including paying all past due interest, late fees and any applicable penalties, then your lender may be open to approving your refinance.
This approach assumes that your HELOC lender offers mortgages, which not all do. You also need to meet their eligibility guidelines for your credit score, loan-to-value (LTV) ratio and debt-to-income ratio, which may be stricter than other lenders.
Additionally, the refinance terms offered by the lender may be more expensive, which means you pay a higher mortgage rate. You may need to weigh refinancing and paying a higher monthly payment and interest cost against not refinancing at all. Although refinancing through your HELOC lender is relatively unlikely and involves potential negatives, it does not hurt to have a conversation with the lender to understand your options.
Use ourREFINANCE CALCULATORto determine how much you can save by refinancing
If you want to use any other lender to refinance, you likely need to bring the HELOC current. In most cases you do not need to wait after bringing the line current before you apply for the refinance, unlike if you are delinquent on your mortgage, in which case you may need to wait up to a year depending on the lender and loan program.
The table below shows refinance terms for leading lenders near you. We recommend that you contact multiple lenders to confirm their qualification requirements. Shopping lenders also enables you to find the lowest rate and fees.
If you cannot qualify for a traditional refinance, you may want to consider a private money lender, also known as a hard money lender. These lenders charge significantly higher mortgage rates and fees but may be able to offer a financing option even though you are delinquent on the HELOC.
Private money lenders focus on your LTV ratio and want to make sure that you have enough equity in your property to provide collateral for their loan. On a positive note, they tend to offer more flexible qualification guidelines for credit-challenged borrowers and are less concerned about delinquencies or missed payments.
You could potentially use a private money loan to refinance your mortgage, the HELOC or both. Because private money loan terms are so expensive, if you decide to go with this option your plan should be to refinance the loan with a traditional mortgage as soon as possible, taking into consideration any prepayment penalty.
Review How a Private Money Mortgage Works
You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by location and lender type. For example, you can find top-rated private money lenders in your state.
"B3-5.3-09, Mortgage Delinquencies." Selling Guide: Fannie Mae Single Family. Fannie Mae, December 4 2019. Web.« Return to Q&A Home About the author