Refinancing your mortgage without a job is a tough task. Once you lose your regular income, banks tend to see you as a risk. So, it’s a good idea to refinance your mortgage before you quit your job or negotiate a severance. Lenders usually need to see at least two years of qualified income before they’ll consider lending to you.
Over the past 20 years, I’ve been lucky enough to refinance multiple properties, multiple times. The economic downturn and the Fed’s easy monetary policy have saved me hundreds of thousands of dollars in interest. It’s been great to see a recovery in stocks and real estate while also being able to lower my mortgage. But things are a bit more uncertain now. Let me share a story about trying to refinance a mortgage without a job.
One year, a Citimortgage officer called me out of the blue, asking if I’d like to refinance my 5/1 jumbo ARM down to 2.375%. Banks were trying to win business by offering better deals. The move from my original 2.625% rate down to 2.375% was only a 0.25% decrease. Normally, I wouldn’t bother for anything less than a 0.5% reduction. But Citibank was offering to pay for all closing costs, so I thought, why not?
I’ve been through this process so many times that I’m willing to put up with potentially 100 days of frustration to save some money. As an unemployed person, every dollar counts!
The Citibank caller turned out to be a mortgage officer assistant, not a mortgage officer as he had claimed. That was the first sign that I should have been cautious. The assistant spent about 10 minutes trying to convince me to refinance with them while I was in the bath, ignoring everything he was saying. Of course, I want to refinance for free. I asked him when the mortgage officer was available to speak, and we agreed to set up a call for Friday morning.
On Friday morning, I didn’t receive a call. I was disappointed and annoyed. I hate it when people are late without a good excuse. If you’re going to cold call me with an offer, you better follow through and not waste my time!
A week later, I still hadn’t heard anything. The assistant had completely ignored me after setting up the call. Why? Because when we confirmed the call, I told him that I no longer had a paycheck. He and his mortgage officer at Citibank decided that I wasn’t worth their time, even though they were the ones who reached out to me first.
I finally got hold of him and gave him a piece of my mind. To be successful in business, you need to look past short-term hurdles and build long-term relationships. These relationships can lead to new opportunities over time. He apologized and asked if we could try again, but I turned him down. I didn’t want to go through any more unpleasant encounters with him during a 100-day mortgage refinance process.
In the end, I reached out to my personal banker to follow up with another Citibank mortgage officer about this deal. This person followed up, checked my documents, looked up my credit score and my payment profile. The result? No refinance for me.
Without a regular income, it doesn’t matter how much money I have in the bank. My monthly debt payment to income ratio was over 40%. Citibank and other banks have a strict 40-45% debt-to-income ratio that can’t be exceeded. In the past, people could borrow with stated income. Now, banks check everything down to the last penny.
The interesting thing is that 44% of my mortgage payment is principal, but the bank still included my total payment (including property tax and everything else) as part of my debt rather than just the interest portion.
Given my low expectations, I wasn’t disappointed because I know that banks see unemployed people as a risk. I also didn’t want to go through a 100-day mortgage refinance ordeal again for a 0.25% reduction.
It’s frustrating not to be able to save additional money, but what can I do except go back to work? In fact, that’s exactly what my mortgage officer somewhat smugly told me. He said, "Sorry we cannot go through with the refinance. Thanks for your understanding! I’m sure we’re hiring. Check our career section, I’ll put a good word in for you."
So, how can you refinance a mortgage without a job?
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Asset-based mortgage refinance: If you don’t have a regular income, banks may be able to do an asset-based mortgage refinance. For example, if billionaire Mark Zuckerberg retired, sold all his stock, and had zero income streams, a bank would figure out what level of assets they are comfortable with to allow for a mortgage refinance.
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Invite a loved one: If your income doesn’t qualify, you can invite a loved one to co-borrow with you to improve your debt-to-income ratio. This strategy is useful for couples who get married where one spouse has a preexisting home, wishes to refinance, but can’t qualify on his/her own for whatever reason.
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Utilize the internet: The internet has allowed for lenders to compete to offer the lowest rates. You can go through a mortgage broker or you can check the latest mortgage rates online for free.
Now that you know refinancing a mortgage without a job is almost impossible, everyone needs to refinance their mortgage before they quit their jobs or retire.
If you have no job, you’re really only left with the three options above. The obvious fourth option is to get a job at least temporarily so you can refinance your mortgage. But who wants to work when we’ve got the support of our government anyway?
I’m now more motivated than ever to improve my passive income streams in order to qualify for a mortgage refinance without having to work. My biggest fear is that by the time I’m able to earn enough passive income, interest rates will have already moved higher!
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