Refinancing A Mortgage Without A Job Is Almost Impossible: Three Potential Solutions

Nice Mansion In Presidio HeightsThere are many benefits of being unemployed. Getting the respect of mortgage bankers is not one of them. I’ve been fortunate over the past 10 years to refinance multiple properties, multiple times. Economic Armageddon and easy monetary policy by the Fed is literally saving me hundreds of thousands of dollars in interest expense. To experience a recovery in stocks and real estate while not having to give up lower payments is rewarding. This disconnect will eventually lead to another asset class implosion, but we’re still a long ways away.

I’ve been sitting on a refinance high after finishing my loan modification with Bank of America this past January. They contacted me out of the blue asking if I wanted to lower my 30-year fixed rate for my vacation property down to 4.25% from 5.875% for no charge. 4.25% is not the best rate, but beggars can’t be choosers given the secondary market for condotel mortgages is still closed. The process took a total of 2.5 weeks and closed without a hitch, unlike my epic primary home mortgage refinance in the Spring of 2012.

With the 10-year yield inching back over 2%, I was not expecting to refinance my primary home mortgage rate of 2.625% so soon. So it was with great surprise that a Citimortgage officer cold called me asking whether I’d like to refinance my 5/1 jumbo ARM down to 2.375%! Banks are now giving up more margins to win business as competition heats up.

The move from 2.625% down to 2.375% is only a 0.25% decrease. Normally I wouldn’t waste my time for anything less than a 0.5% reduction. However, Citibank was offering to pay for all closing costs so I figured why not. I’ve been through this song and dance so many times I’m willing to bear potentially 100 days of frustration to save some money. Refi as many times as possible. As an unemployed person, every dollar counts!

MORTGAGE HEAD FAKE

The aggressive Citibank cold caller turned out not to be a mortgage officer as he indicated, but a mortgage officer assistant. Being misled was the first sign I should have been wary.

The assistant spent about 10 minutes pitching to me why I should refinance with them as I scrubbed myself with bubbles in the tub ignoring everything he was saying. Of course I want to refinance for free.Sign me up. When is your mortgage officer available to speak?” I responded after his speech.

How about sometime Friday morning?” the assistant asked.

Sounds good. Let me know when on Friday and I’ll make time.” I responded.

The assistant said he’d get back to me the next day (Thursday) with a time and we left it at that. At 4:55pm on Thursday I shot the assistant an e-mail because he still had not confirmed a time. He finally responded with a time of 10:30am Friday morning and I confirmed. During this conversation I told him I no longer had any W2 income. He said that’s fine and that he’ll get the mortgage officer to walk through different scenarios.

Come 10:30am on Friday morning I receive no call. Disappointing.

At 12noon I shoot the assistant an e-mail asking him to, “Call any time. Your guy is 1.5 hours late, but I will wait until eternity for his call.” I was pissed. I absolutely hate late people who don’t provide legit excuses. If you are going to cold call me with some offer, you better follow up and execute on your offer and not waste my time!

At 3pm, four and a half hours after the Citibank mortgage officer was supposed to call, I e-mailed the assistant a final disapproving follow up. Again, no response.

It’s been a week now and still NO RESPONSE. The assistant completely ignored me after first reaching out and setting up the call. Do you know why? It’s because when we confirmed the call on Thursday, I told him that I no longer have a paycheck. He and his mortgage officer at Citibank decided that I was not worth their time, even though they were the ones who reached out to me first.

I finally got a hold of him today and ripped him a new one. To be successful in business, you’ve got to look past the short term hurdles and build long term relationships. Such relationships blossom into potentially new opportunities over time. Your long term relationships also tend to offer referrals for more business. He apologized and asked if we could try again, but I shut him down. I kept imagining how many more unpleasant encounters I’d gave with him over a 100 day mortgage refinance process and shuddered.

A FINAL SALVO

I ended up reaching 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 W2 income, it doesn’t matter whether I have more liquid assets in the bank than the size of my mortgage, my monthly debt payment to income ratio was over 40%.

Citibank and other banks have a strict 40-45% D/E ratio that cannot be crossed nowadays. In the good old days you’d have folks coming in with stated income to allow them to borrow. In the new environment, 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 (along with property tax and everything else) as part of my debt rather than just the interest portion.

Given I had low expectations, I wasn’t disappointed because I know the unemployed are dead to banks. I also didn’t want to potentially go through a 100 day mortgage refinance ordeal again like I did last Spring for 0.25%. It sucks 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 somewhay smugly told me.

Sorry we cannot go through with the refinance. Thanks Sam for your understanding! I’m sure we’re hiring. Check our career section, I’ll put a good word in for you.” said the mortgage officer.

What a nice guy. Perhaps going through one’s mortgage broker is a way to get a job at a bank!

OTHER REFINANCING SOLUTIONS

1) Asset based mortgage refinance. If you do not have W2 income, banks may be able to do an asset based mortgage refinance. Let’s say billionaire Mark Zuckerberg retired, sold all his stock, and has zero income streams. A bank would figure out what level of assets they are comfortable with to allow for a mortgage refinance. The problem with asset based mortgage refinances is that they are very rare and there is no standard for how much in assets a borrower needs to qualify. It’s up to you to ask for specifics. Also remember that if you have a jumbo loan, your bank likely still owns the loan as opposed to selling it off in the secondary market. When a bank owns a loan it has more flexibility to alter the terms.

2) 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. Unless someone really loves you back and is utilizing the property, you are unlikely to convince anybody to share a mortgage loan with you, especially if the person doesn’t get added to the title. However, 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. This is a chance to join financial forces to save money on mortgage interest and a whole lot of other things. Just don’t split up OK?

3) 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 go directly to LendingTree, the largest online lender for a no obligation quote. I always check online before and after I get solicited by a bricks and mortar bank to make sure they are indeed giving me the lowest rate at the time. It’s like checking Amazon.com for the lowest price after you see something you like at the store. It’s a no brainer.

CONCLUSION

Everyone needs to refinance their mortgage before they quit their jobs or retire. Although banks seem to be loosening up their lending standards now that the economy is in full recovery mode, refinancing a mortgage even with a job is still difficult. 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 magnanimous 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!

Recommendations:

Shop around for a mortgage. LendingTree Mortgage offers some of the lowest refinance and new mortgage rates because they have a huge network of lenders to provide mortgage loans, home equity loans, and home equity lines of credit. If you’re looking to buy a new home, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.

Check Your Credit Score: Take a moment to check your free credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance! Find out what your credit score is before applying so you don’t waste time.

Updated: 2Q2014

Best,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Money Beagle says

    I would imagine that these same concerns would arise for those who are making a good income but are self-employed or small business owners. My aunt and uncle used to own a retail store, and even though it was largely successful, I know they had many of the same problems when attempting to get personal financing.

  2. says

    I’m in an interesting position. I started the refinance process a month ago so should be closing within a few weeks. Just lost my job Monday. technically I’m still on payroll and hopefully this won’t affect the refinance process. We’ll see. I have my fingers crossed!

    • says

      Yikes Jose. That is a precarious position. My recommendation is to not volunteer any more info than the bank asks. Depending on how long more you are on the payroll for, you could have a perfect situation. Banks generally ask for the last two W2 stubs = 1 month. Good luck!

  3. says

    This is the exact situation my wife and I find ourselves in. We have no W-2 income and figure that we’ll get turned down to do a refi now. We re-fi’d about two years ago, but rates are much better now. I really would love to be able to pursue getting it done, but do not want to just set myself up to get turned down.

    • says

      If the rates now are at least 0.5% lower and your breakeven is less than 1/4 the amount of time you plan to stay in your house, I’d inquire about an asset based mortgage refi. Can’t hurt.

  4. says

    Bummer. That must have been frustrating. At least it was only for a small amount and you already have a fantastic rate after your last refinance. Even if it wasn’t going to work, that assistant should have contacted you. In any customer service linked business follow through is paramount. I have had hugely varying support from bankers at Chase for ex. Only a few actually take the time to go the extra mile and follow all the way through. If we have to continually “chase” them they aren’t doing their job well.

    Try not to take Citi’s response personally. As you said in the Zuckerberg hypothetical example, banks just don’t know how to handle asset based refinances. I’m glad my mother refinanced before she retires. She had a harder time getting it done after divorcing and having less income.

    That’s a good tip to check online rates whenever you are considering refinancing though. I love to comparison shop. I just did that this week looking for printer ink!

    • says

      Chasing a chase rep is so comical, it’s stupid. The problem lies in who these folks hire. Big banks need to up their training programs b/c if they are hiring uncourteous folks who have thin financial knowledge to try and gain business from existing or new clients, things will blow up in their face.

  5. says

    Yeap, that’s how it goes. JD also couldn’t finance his new condo and ended up paying cash for it. Hopefully we won’t have to finance anything soon. I’m 99% sure we are dead to bankers too. My wife doesn’t make enough money on her W2.

    • says

      I’ll have to check the JD story out as I’m sure his windfall from selling GRS was ginormous. Paying cash ain’t the worst thing, especially given JD is probably not aggressively into stock investing.

  6. Brent says

    Can you just get a job at McDonalds for awhile to get enough W-2 income to get you over the hump? If you look at the NPV of the reduced mortage payments over time, you might be the higher paid burger flipper in history.

    I read your blog a lot and I’m always looking at quirks in incentives, but it’s usually related to tax quirks (there’s a lot of them). I actually calculated out that I would be paid the equivent of about $21k (in 2012 dollars…actually about $70k in actual $’s when I retire) to quit my job for a year just based on the lower taxes of converting my standard IRA’s to Roth IRAs if I have no income for the year. Lots of assumptions in that model so actual figures could be much more (or less). I won’t do it since I like my W2 income, but will be nice to know I have this “bonus” if I do lose my job at some point.

    • says

      At my age, I’ve graduated from McDonald’s. I opened up for MCD at 6am when I was 15 years old. If I am to go back to fast food, I’m going to apply to In N’ Out Burger baby!

  7. says

    About 13 years ago, I took out an original mortgage when I bought my current townhouse. I was a consultant working for myself and was able to get a good rate without income verification. I think things were loser then. I used my line of credit to make the down payment too.

    I do not plan on refinancing before I retire although I used to think I should. I will keep a a line of credit tied to my home for access my equity.

  8. says

    Ugh I hate sales people like that. I have had many experiences where individuals will close up shop as soon as they learn there are some hurdles. I agree wholeheartedly with your insight into creating lasting business relationships and that is how I operated back when I was a banker. I ran into some trouble trying to qualify for our new home loan. The mortgage company wants to count all of the mortgage of our rental property against us, even though we are bringing in $300 more in rent than the actual mortgage every month!

    • says

      Got to keep shopping around on the Internet. I think online mortgage companies are really starting to take market share away from bricks and mortar due to their more streamlined process.

  9. says

    We have refinanced our homes and rental several times now but not without W2 income. I used Quicken once and they were amazing. This last time, I refinanced my home with Amerisave and working with them was very frustrating. They did offer a no cost refinance but dealing with them was a giant pain in the ass! Refinancing is a huge pain but I like saving money =0

      • Geek says

        We just refi’d and it was awesome. Quicken wanted too many points up front, so instead of negotiating with a (friendly but annoyingly persistent) salesman, I went to my credit union.
        I replaced my 20 year (with ~18 left after some prepay. We bought last year) with a 15 year and dropped a point. Over the lifetime of the loan we save 30k or more. If it’s not worth 1 month of annoyance for thirty thousand dollars, you must already be rich!

  10. says

    I wouldn’t qualify for another ReFi without my wife working. Only reason we got this one was because it was an FHA Streamline. Wouldn’t have been able to do any other type with my current income. Bummer about the “No W-2, No loan for you” deal. Did you refer them to your blog about your passive income sources? I mean really!

    Maybe you could get a part-time job at Starbucks. Heck, you even qualify for benefits ;)

  11. says

    Last month someone at my old job as terminated on a Friday and on that Tuesday I got a call to verify employment. I knew that this person had been working on refi for about 2 months. Had I said “no” the deal would have died even though this individual was entitled to 2 additional paychecks. I was nice and said “yes” instead then called to let the person know what I had done. The person sent hand written “thank you” note because the refi would save hundreds per month at a time when it was needed.

    If you’re self-employed banks have been asking for 5 years of tax records. If you work for someone else they ask for a maximum of 2 years.

  12. says

    I cannot understand why mortgage personnel is close minded. They are not thinking properly that most of the rich people are not working individuals. They should check your capacity to pay not if you have a job.

    This is a good post Sam.

  13. says

    Refinancing before you leave your job is a great idea. It’s one of those things that people usually don’t think about, but definitely makes a lot of sense.

    I’m sitting at 3.625 right now because I had the bank pay for all of my closing costs. My credit isn’t fantastic because I just started the mortgage, but I wonder if I could try to lower that rate in the next few months.

    • says

      Kevin, are you a young man hence your “credit isn’t fantastic” comment? Or did something happen? 3.625% is not bad, but for WHAT type of duration are we talking? I also respond to your comment about passive income in my net worth for above average married couples post fyi.

  14. says

    I understand banks being really strict in this new environment, but it seems pretty near sighted to look past someone based on one metric of evaluating a client. Especially seeing as you have considerable other business with Citibank as I think you’ve mentioned in the past. Giving you the .25% on the mortgage seems like a small price to pay if it means keeping/growing your business with them in other areas IMO.

    • says

      True. It’s just the way of the new mortgage refinancing regime nowadays. If I was offered a 0.5% or 0.75% reduction and then got ignored, I would be aggressively going after Citibank and asking them to honor their proposal. But at 0.25%, and a potential 100 day mortgage refinance process, I figured meh. I just think this is a good story to help others who are not employed as well who want to refinance or who are thinking of refinancing.

  15. says

    I thought that you were essentially self employed, and probably doing pretty well for yourself judging by the popularity of Financial Samurai. I can understand not lending to a retiree, but not lending to an entrepreneur doesn’t make sense to me. Does entrepreneurship not count, or are you just dealing with stupid refi agents?

  16. Tony says

    Hey Sam, you are totally right. Heck, it’s hard enough to refi WITH a job and high income if your DTI is whacked out a bit. Luckily I refinanced recently, right before I am “getting laid” next month. Thanks as always for the great advice, man!

  17. Samantha says

    I have been in the same boat for a couple years now. Any idea how long one would have to flip burgers to begin to qualify for a refi?

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