Mortgage Refinance Failure: Lending Standards Remain Very Tight

Mortgage Refinance Failure
Mortgage Refinance Failure

Back in 2015, I was rejected for a mortgage refinance. Banks didn't even offer me a higher rate. They simply refused to refinance my loan. I was a mortgage refinance failure.

Let me share with you my experience so you can increase your chances of refinancing or taking out a new mortgage at a great rate in 2023 and beyond.

With bank failures at Signature Bank, Silicon Valley Bank, Credit Suisse, and First Republic Bank, lending standards continue to be very tight. Therefore, it's important to get the highest credit score possible to give your chance at getting a mortgage, let alone one with the lowest mortgage rate.

Here's my mortgage refinance failure story.

My Mortgage Refinance Failure: What Happened

It's official. I've failed in my attempt to refinance a $1 million 5/1 ARM mortgage from 2.625% down to 2.25%.

Am I disappointed? Yes. But am I surprised? Not really. Bank lending continues to be extremely tight post the financial crisis. I wish all freelancers, contractors, and folks looking to minimize their debt only the best of luck!

Financial failure is great because it allows us to learn from our mistakes, make better decisions, and get wealthier over the long term. I've got a whole list of financial mistakes I've made in the past if you care to take a look.

I'm of the belief we should always take action to improve our finances. Letting the housing market increase or decrease in value doesn't take any effort once a property is purchased.

But imagine experiencing an effortless increase in property values while putting some legwork into reducing mortgage costs. That's a winning combination.

This post offers up some plain truths as to why I failed, and what I plan to do about it. Maybe you're having a tough time refinancing yourself? This post may offer some comfort, hope and direction.

Reasons Why My Mortgage Refinance Failed

1) Went with a new bank where I have no relationship.

After checking for the latest mortgage rates online, I used the knowledge to see if my old mortgage officer at Citibank could help me out at his new employer, JPM Chase. Citi couldn't match a 2.25% 5/1 jumbo ARM, but JPM Chase could. I erroneously believed my mortgage officer would have some influence in the refinance process. Wrong.

You'd think that winning a $1 million mortgage refinance and potentially building new business through the JP Morgan Chase private client channel would be enticing for Chase to approve my loan. I guess not.

My mortgage officer was nothing more than a salesman to get me in the door. Once I was in, I was at the mercy of Chase's underwriting department.

2) Went with a brick and mortar bank.

I've come to the conclusion that big banks are becoming uncompetitive. Big banks don't have technological efficiency.

Banks went from one extreme of lending to anybody with a heartbeat, to only lending to those who don't need a loan! Bank inefficiencies are why fintech companies are gaining popularity amongst investors and consumers. Who needs a big bank when the internet can dis-intermediate and lower costs.

Furthermore, JPM Chase is in the middle of paying $13 billion in penalties for selling “bad mortgaged-backed securities” before the financial crisis (along with Citi, BoA and others). The money is supposed to go to struggling homeowners as part of a consumer relief program.

I'd love to hear from you if you've been a beneficiary of such funds. So long as big banks are paying large fees, their lending standards will be super tight because the government is looking over their shoulders.

3) My finances weren't strong enough.

Let's be frank. If I had several million in the bank or increased my income to $500,000+, my refinance would have gone through. But because I bought another house last year, I added $990,000 in mortgage debt to my balance sheet for a total of four mortgages.

Furthermore, I don't have two years of contracting income under my belt. Therefore, 100% of all income earned between November 2013 – now DOES NOT count.

Finally, I've structured my online business so that I've been earning a relatively small salary to comply with the minimum income rules of running an S-Corp, while the rest of the proceeds go elsewhere. My goal is to always keep my gross income around $250,000.

With my passive income and deferred compensation from my old employer, I really can't afford to pay myself much. Unfortunately, by engineering an income to comply with the ideal income for maximum happiness, I ended up hurting my refinance chances.

Chase Bank Missed Out On My Business

For over 10 years, I've paid my mortgage on time. The refinance would have reduced my monthly payment by roughly $500 ($300 in interest), making my default risk even lower. Furthermore, my loan-to-value ratio is under 35% compared to the usual 80% LTV when people put 20% down to buy a home. Getting rejected when I have over 65% equity in my home and an excellent credit score is pretty ludicrous.

Banks also have a stringent way of calculating rental income. For example, despite receiving $3,800 a month in rental income from another property when reviewing my cash flow, JPM Chase can only take 70% of that amount in their underwriting calculation ($2,660) to account for potential losses or vacancies. This is despite having zero vacant months for 10 years.

Further, despite my mortgage only being $1,308 a month ($1,208 is principal), the underwriter calculated a monthly LOSS from my property! Fuzzy math.

Finally, given the stock market, real estate market, and almost everything else have continued to move up over the past year since I purchased my house, my overall net worth has also risen by a healthy amount as well. Unfortunately, they have no idea that several comparable homes in my neighborhood have sold for 50% higher in terms of price for square foot. Only I care about such detail.

If JPM Chase accepted my refinance, I would have paid my mortgage on time for five years in a row. I also would have transferred at least $250,000 in assets into deposits. Finally, I would have referred several other people to JPM Chase to refinance their loans. Now, no way.

What I Plan To Do After My Mortgage Refinance Failure

Failure is a part of life. What counts is what you do after failure. Here's how I plan to improve my financials and how you can increase your refinance chances if you find yourself in the same boat.

1) Pay off other rental property mortgages.

I'm on a mission to pay off $92,000 of a rental property I bought with roughly $450,000 in debt in 2003. I thought I'd be done with paying off the mortgage after 10 years, but I didn't stay focused in slaying that beast. The mortgage rate is only 3.375%, but it's still ~1.4% higher than the 10-year risk-free rate of return.

By paying this debt off completely, my cash flow improves by more than the $1,300 a month mortgage payment because of the funny math by bank underwriters. No debt significantly increases the wholeness of your income. Furthermore, my total mortgage count goes from four to three.

See: Why I'm Paying Down My Mortgage Early And Why You Should Too

Action plan for you

Try to completely pay off one higher interest debt before trying to refinance. Paying off 90% of one debt is as bad as still having 100% of debt left in the underwriter's eyes, i.e. having $10,000 left in a $100,000 mortgage is just as bad as having a $100,000 mortgage.

Average credit score by mortgage origination

2) Stick with my main bank. 

Even though bricks and mortar banks are falling behind, I've got a 15 year relationship with Citibank. They've got a couple of my mortgages, a sizable private wealth management account, an unsecured line of credit, a savings account, and a checking account.

The next time rates fall off a cliff, I'm just going to stick with Citibank. I won't bother going through the process with another bank. Doing business with a familiar bank is so much easier.

Action plan for you 

Banking is a relationship business. The longer your relationship is with one institution, generally the more favorable the terms. The more account types you have open with a bank, the more lucrative you are as a client. There can still be difficulties of relationship pricing when refinancing.

However, typically it's best to stick with the bank where you have the most assets and accounts. Of course, I'm still going to check the latest mortgage rates online first, to keep them honest!

3) Earn a higher income before planning to refinance.

Although I began consulting in November 2013, I didn't get paid until January 2014. This means that my two year anniversary of having my freelance income count is in January, 2016. During a refinance, banks always ask for the last two paystubs. They might even ask for the last three months, but I've yet to come across this scenario during my ~8 previous refinances across multiple properties.

I'm going to bump up my salary from <$5,000 to $25,000 a month for two months to prepare myself once again for a mortgage refinance while paying myself peanuts until then.

Alternatively, I can just pay myself $25,000 a month for two months prior to when I think rates will collapse, but who knows exactly when that is? For those who think I'm misrepresenting a higher income, I can actually pay myself much more than $25,000 a month.

Instead, I'm giving the rest of the money to someone else as I don't want to earn more. The downside of a high income is paying more employer FICA tax.

Action plan for you

Plan out your finances according to an estimated refinance window. For those of you with regular W2 income jobs, perhaps temporarily take on a second job or freelance work to bolster your income for months leading up to the refinance. You might not time the refinance perfectly, but if you haven't refinanced in years and you can refinance now for at least 0.5% lower, then you don't have to time the refinance exactly for the lowest rate possible. You're in the money!

All you need to do is have a second job or do freelance work for two months before you apply, and hold that job for the duration of the mortgage refinance process (2-3 months). After your refinance is done, you can quit.

You're asking yourself what happened to having two years of income history for any source of income to count. Well guess what? Even if your income history doesn't officially count, banks still want to see as much income as possible over the past two months.

JPM Chase asked me for all my freelance pay stubs, and bank statements showing the inflow of those pay stubs even though they said they can't be included. My mortgage officer then wanted me to write a 700 word letter explaining why I wanted to refinance, and why I was working as a freelancer, instead of working for them full-time etc. 

Being A Mortgage Refinance Failure Stinks, But Oh Well

It's sobering to get rejected by JPM Chase. I never failed in multiple mortgage refinance attempts before with Bank of America, Citibank, and Washington Mutual (when it were still around).

I barely was able to get a 2.5%, 5/1 ARM loan to purchase another house in 2014. Therefore, it's not a complete surprise that I was denied in 2015. The thing is, I wasn't asking to take on more debt. I was asking to reduce my debt burden while my net worth increased. So it still feels bad to be a mortgage refinance failure.

For reference, according to Home Mortgage Disclosure Act data, 20% of Black and 15% of Hispanic loan applicants were denied mortgages, compared with about 11% of White and 10% of Asian applicants. As an Asian American, I guess I'm now part of the 10%!

Motivated To Strengthen My Finances Further

Due to the rejection, I will crush my other $92,000 rental mortgage by June 15 of this year. I will also make more money to avoid future rejection. Spending time talking on the phone, doing research, and gathering all of those documents for JPM Chase was a royal PITA. I could have instead spent that time producing. Oh well, at least I wrote this post.

If someone like me can pay down my entire $1 million mortgage by selling some stocks and CDs and can't refinance a mortgage, have banks like Chase gone too far? It seems so.

The upside to my rejection is that during the next housing downturn, there won't be as many defaults, short-sales, and bankruptcies because everybody will be an excellent creditor. Only the government and their FHA program of allowing only 3% down could really cause a lot of pain now.

Let's hope new legislation regarding lower mortgage fees for lower credit score homebuyers won't backfire in the end. Too many unqualified borrowers and overly aggressive lenders are what led to the 2008 housing crisis in the first place.


Shop around for the latest mortgage rate. Check the latest mortgage rates online. You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more mortgage rate quotes you can get, the better. This way, you feel confident knowing you're getting the lowest rate for your situation. Further, you can make lenders compete for your business. 

Invest in real estate more strategically: If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, don't want to tie up your liquidity in physical real estate, or are a mortgage refinance failure, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate is a key component of a diversified portfolio. Real estate is much less volatile than stocks. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer.

I've personally invested $953,00 in private real estate funds since 2016. I believe in the work-from-home trend and the demographic shift to lower cost areas of the country, where Fundrise primary invests. Real estate is favorite asset class to build wealth.

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

Mortgage Refinance Failure is a Financial Samurai original post.

61 thoughts on “Mortgage Refinance Failure: Lending Standards Remain Very Tight”

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  3. Sam,

    I know this is a bit off topic here… But my wife and I are looking into buying a home of no more than $250,000, which is completely doable in the State we live in (COL is less than most other States). I have and will put down $100,000 as down payment and am looking to finance the difference of $150,000, which I will pay off in 3 years. What you recommend an ARM or fixed-rate mortgage given the above? I don’t plan to sell after paying it off, we plan to live in the house for 5 years total, while we pay off the mortgage in 3 and actively save another $100-120K down payment during those 5 years, which we plan to use towards another house and rent the paid-off home for passive-income. What are your thoughts?

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  7. I’m curious. What do you plan to do when the 5 year introductory period of your arm expires? Rates will probably be sky high by then.

    1. Probably nothing or refinance to another 5/1. My lock expires in about 2 years. I believe interest rates will remain low. If it floats, it might actually go down.

      Why do you believe interest rates will be sky high by then? Are you that bullish on the economy? Hope so bc my assets will skyrocket as well then!

      1. Think that at some point people will take the gains from the U.S. Stock market and move them to housing. At that time rates will be higher. It may not be 2 years but prob by 5. Their are a lot of real advancements that are occurring at the present moment. Entire industries are about to change (music, television, automobile, etc). Bodes well for the economy.

  8. Crazy to hear your experience trying to refinance – I would have thought a client like you would be a no-brainer! We had the complete opposite experience refinancing recently when we bought our new home. Our mortgage doubled, and we could barely afford the repayments, but the new bank (credit union) we went with were tremendously helpful in trying to get us approved! (fortunately I now have a new job that pays much better and makes the mortgage much more affordable!).

    We also went with a credit union which was much more personable as well as a tremendously low rate, similar to Chris’ comment above. Might also partly explain why banks are trading on ridiculously high multiples here in Australia – I not certain our bank’s lending practices are as strict as in the US, and property prices here are going insane!

  9. Love the part about having a relationship with your bank. We actually decided to go with a local credit union for our last mortgage because it was small, we got to sit down and talk with the same person we’d talk to for questions after the mortgage was created, and the personal touch was unbeatable (as were the rates). It’s nice to be able to call or email someone who knows me when I need something (like tax forms or more information on something) instead of having to wait on hold for a major bank to respond. Thank you for sharing your story, well written and intriguing to read.

    1. Good call. Going with a boutique bank is probably the way to go. I love First Republic Bank, for example. I just don’t have my assets there anymore after my CDs expired last year.

  10. Sam,
    I’ve never dealt directly with a bank for mortgage or refi’s. I have a mortgage broker that I use. Have you tried that and do you know advantages/disadvantages to that approach? I’m wondering now in retrospect if I’ve been getting a worse deal through him than dealing myself with my bank or credit union

    1. I don’t go through mortgage brokers bc the Internet has allowed me to become my own mortgage broker by searching online. They collect a fee, which could have gone to you negotiating a lower rate.

  11. Meg is right. I’m a real estate broker and whenever I have a client pre-approved through Chase I get very concerned. I know the process will be difficult and if we get into a multiple bid situation, the listing agent would likely prefer to work with a lender who has a better reputation.
    I have had many clients who have had large depository relationships with Chase and it did not help the process or their rate.
    Whenever I have a client with a unique (anything other than a clear cut purchase under standard lending guidelines) I refer them to my network of private banks that have an internal approval process. They are able to get things approved that most big banks could not.
    Smaller banks and private lending institutions are absolutely better to go through. They have less rigid guidelines and would be able to accept more of your income. They take the big picture of your net worth into consideration. I wouldn’t generalize Chase’s underwriting guidelines as the standard. It is possibly the standard for big banks but there are many other options out there that would likely work for you now.

    1. This is exactly the truth. If I’m selling my house and see someone pre-approved for a Chase mortgage, they lose. I’m looking for a cash buyer or no financing contingency offer with a smaller bank like a First Republic. Post coming up.

  12. Hold the phone! Is this refi you are attempting for a RENTAL?!?!! Come on! When you got the original loan, you were the occupant in your primary residence. The $990,000 is for your new primary residence, and this is for your old one now rented? If it all goes down the drain, the bank has no recourse. You have been raving about the SF real estate market…just a question, but of the 35% LTV, how much of that 35% has been realized in the last two years? All of it? More? Hmmmm. Well, if you have those high-interest CDs coming due, paying off your $92,000 at 3.375% is the best risk-free deal you will get. Nice column, sorry you were put through all those hoops, but try to see it from the lending institution’s point of view.

      1. Nice~! The lightbulb just went on over my head*got it!* I come to FS to for the finance, but stay for the strategy.:-) Hope you find another crack at this one.

  13. When I applied for my first mortgage, one of the things that shocked me was that the Hispanic box was checked on the application. I haven’t identified as Hispanic before because I do seem clearly Asian. But was told that was the only way I would get approved, was to have them classify me as Hispanic. Maybe try that for your next application?

  14. Put yourself in the banks’ situation. If someone (with your exact same situation/assets/etc) came to you looking to borrow money with a promise to repay at less than 3% interest rate, what would you tell them? NO!! I guarantee you would. You aren’t really turned down due to not being financially qualified to repay, everyone knows you’ll repay the loan per the agreements. The banks/lenders that will hold that type of mortgage on their books can make better money elsewhere. You would be a waste of their time and money. Just like you can turn down job offers that pay too little, the lenders that are free from government regulations will do the same.

    1. You have a plausible thesis, but banks earn money through a spread.

      2.25% isn’t huge, but their cost of funding is 0.1% – 0.89% How much do you earn in a checking or savings account? LIBOR rates are nothing.

      Think spread business. Lending at 15% sounds good, but what is their cost of capital?

  15. Sorry that didn’t work out, would be very frustrating. I have to ask though, was it really worth it for the relatively very small 0.375% reduction in rate? How long was it going to take you to make up the cost of the refi?

    1. Yes, saving $3,750 a year in interest is worth it to me, even though in the grand scheme of things, it’s not THAT much. The trader in me wants to bottom tick rates and refinance. I did that. It feels good to take action to make a profit. Unfortunately, JPMC wasted several hours of my time.

      It was a PITA, but it wasn’t that bad. I just had to send in documents. I’m fairly organized in that way.

  16. “This was the most annoying thing about the process, which absolutely pissed me off. My mortgage officer then wanted me to write a 700 word letter explaining why I wanted to refinance, and why I was working as a freelancer, instead of working for them full-time etc.” hahah, this is painfully funny.

    They want to see all of your pay stuffs but didn’t count them as income, it sounds so ridiculous. I’m trying to borrow again for another investment property, but learning from your experience, I’m wondering if they are going to let me go through the process. After giving myself a $10K pay raise through increasing my rental income. My debt to income ratio should only be <30%, their requirement is <46%. But base on your experience, they only count 75% … oyyy, I might have to sell my stocks to get another property.

    Thanks for sharing, this is extremely informational. Goodluck on your next attempt!

  17. I had a similarly frustrating experience this winter. I have a small commercial office building that currently has no mortgage or liens. I’ve had a tenant in the building for over 2 years and the tenant has never been late or missed a payment. I wanted a commercial equity line of credit at about 50% LTV for the purpose of building business credit and possibly investing in another asset. I was willing to personally guarantee the equity line and my annual income is higher than the amount I was asking for, and still I was rejected by both a large bank and a small bank. It makes no sense! After I file my 2015 taxes I’m going to try again because you have to start building credit somewhere. Uggh.

    On another note, I did have a great experience with a mortgage on a new personal residence. I didn’t have 20% liquid to put down on the house (I could’ve sold stuff but that wasn’t ideal). Because I have good income and a good credit score, I was able to get a 15-year fixed rate mortgage with only 5% down at 3% APR. I’m paying PMI, but the mortgage includes a burn down provision so as soon as I have 20% equity, the PMI goes away (so I’m very motivated to sink everything into buying down the mortgage within the next year).

  18. This post makes me sick. You’re not the only one I’ve heard going through the pain of traditional mortgage lending.

    I’ve been trying to get a mortgage for over a year and am having no success. It’s gotten so upsetting that I’ve considered hard money loans. With over $2000/m in rent, I desperately want that money to be working for me.

    I’ve started looking at creating a new consumer mortgage business using p2p to help service my need. I know there is a need for individuals looking to refinance and purchase with varying situations that can afford and have the creditworthiness to pay their loan, but are turned down.

    Did you seriously write the 700 page letter? Why would that be any business of the bank? They’re in the business to service our financial needs not dictate our means of life.

    1. Caught my typo. 700 word letter. Basically, I wrote a blog post telling JPMC why I deserved to get a mortgage refi, why I won’t welch on them, what I plan to do with my life, why I’ve structured my income and net worth the way I do, etc. Very personal, and for them to say no at the end is deflating.

      I do wish for the strong RISE of P2P / social lending. Banks are killing themselves and will fall behind.

      Best of luck in your continued mortgage hunt!

  19. I think my original comment didn’t get posted (if it is just pending feel free to delete this). I had pointed out that your situation is the quintessential example of somebody who needs to work with a private banker. I’m one, and most of my clients are affluent but can’t qualify for conforming mortgages due to volatile or self-employment income, being retired (and therefore having low taxable income), assets being tied up in trusts or businesses (which mortgage lenders must completely ignore), or credit issues.

    The “private” part of the name comes from the fact that we hold all our loans on the bank’s books rather than selling them (and all your data) to other investors or government agencies. So we can be a bit more flexible in underwriting and pricing – as opposed to conforming lenders who must stick to “fair lending” standards and treat every application the same, regardless of bank relationship or anything else. And those standards are definitely much tighter these days as you figured out!

    The downside is that because we hold our loans we can’t usually offer the super long terms or low rates that the government subsidizes via conforming mortgage standards.

  20. Also I just wanted to say that it’s great you have a 15 year history with Citi, but you’d probably do a lot better in terms of service and access to special products (loans and deposit rates) at a smaller organization. The mega- banks have much higher income and liquidity minimums to get any sort of personalized service and for your relationship with the bank to move the needle and matter at all. You need to be a bigger fish in a smaller pond.

    I don’t know about Citi’s limits particularly, but at Wells and BOA you have to have millions not just in cash but with them to qualify for private client services and get your own relationship manager. At Wells the top tier private bankers won’t even be paid on loan production for clients whose deposit accounts fall below their 8 figure minimum.

    Most big banks usually have like 5 levels of “private bank” service but the lower levels are just marketing; you may get a different 1-800 number and a shinier debit card than the average Joe customer for example, but it’s a far cry from the bend-over-backward service that same customer could get at a smaller regional bank or community bank. Most of my clients make $250K or so a year and have 7 figure net worth but often a lot less in liquidity. Good clients who deserve good service, but not near rich enough to get it from a big company. It’s fun to help those who come from the big banks and never realized the kind of perks they were missing.

    1. My friend really like Citibank, during her bankruptcy era, Citibank was the only place who give her a credit card. Without a credit card, you can’t rent a car, can’t rent a hotel, can’t buy airplane ticket like a regular person. She loves them, stays loyal to them. Since then, her credit is back to high 7xx – 8xx. I don’t blame her. But I don’t have pleasant experience with them.

  21. Dude, you’re the classic example of somebody who needs to work with a private banker. As one myself, I can tell you that most of my clients are affluent but can’t qualify for conforming mortgage financing due to the way their income and/or assets are structured. Either they are self-employed (your problem), or they are retired and have no taxable income, or they have a credit score issue, or all their money is tied up in trusts and businesses which conforming mortgage lenders cannot consider at all.

    The upside of private banking is that we can underwrite with much more flexibility (though less than we used to have), we can take into account the relationship when it comes to pricing and approval, and you can develop a relationship with one banker as a point of contact, not a 1-800 number. Also if you’re rich enough or at a small enough bank (where you’re a bigger fish in a smaller pond), you can get all kinds of free lunches, happy hours and tickets to fun events courtesy of your banker.

    The downside is that we can’t offer the long terms or extremely low rates that conforming (aka subsidized) mortgage lenders can provide.

    If you’re trying to get a conforming/conventional mortgage, none of the relationship stuff matters at all since all the loans just get sold the day after closing. They have to stick with the investors’ guidelines when it comes to income, etc. Regardless of whether you go online or to a big brick and mortar brand, we are ALL held to the same uber-strict regulations now. Rules about how to count self-employment income will vary slightly depending on who will be buying the loan, but pretty much everywhere now requires at LEAST 2 years of profitable history, and they usually only consider the LOWEST income year out of the last three (some still take averages but I have been shocked lately to find out that isn’t even usually the case anymore).

  22. I was amazed back in 2004 when I was sortied for a mortgage with only 5 months as a self employed contractor. I should have seen the writing on the wall and been able to predict the housing meltdown.

    Banks only do what they are forced to do when the penalties outweigh the profits. The news is full of stories of banks paying small penalties for something that made them even richer. So if they’re rejecting you, it’s not because you’re not qualified, it’s because they don’t think they can make enough money off you.

    1. “…it’s not because you’re not qualified, it’s because they don’t think they can make enough money off you.”

      No more calls, we have a winner. Did you ever imagine that a 2.65% mortgage would seem too high? The downside to Fed-driven artificially low interest rates is that there is less profit for lending institutions, while the risk remains static. While it is nice to get tickets from a loan officer, or a friendly smile while they expedite your banking business, “relationships” with financial institutions are not personal. Things change quick, a divorce, a job-loss, illness, market vagaries, etc. and four years from now when the loan officer may have moved on twice, the institution needs to see justification in the numbers. “Vouching” for someone is tough to put on a spreadsheet.

      FS, am liking your strategy of decreasing debt. Leverage works two ways; it has been pretty good for a long time while interest rates decline and your cost-basis is unchanged. No telling when things might change, but we all know they will. You will be protected tomorrow by your decisions today.

  23. Augh sorry to hear that! Banks can be SO frustrating to deal with. There are so many people involved and they are never well organized. I can’t count the number of times BoFA asked me to send the same docs over and over again when I was trying to refinance a few years ago. I kept saying “hello! I sent that to you on Jan 5, why are you asking me for it again?” but they still made me re-send things because they “lost” them or “never received” them. Yeah right.

    Anyway, sounds like you’ve done a great job of shaking it off and using the government and bank’s over strict rules to make some positive changes in your situation. You will feel so fulfilled when you pay off that rental mortgage in full! You gotta take a picture of the final statement showing zero balance to treasure that moment.

  24. I left mortgage underwriting 2 years ago, so surely some rules have changed however I doubt anyone could “temporarily take on a second job or freelance work to bolster your income for months leading up to the refinance.” You couldn’t use your freelance income because you didnt have sufficient history. For that same reason, someone can’t get a 2nd job 3 months before a refi and expect to use the income. You stated all you need to do if have freelance work for 2 months before you apply, yet you couldn’t use your contracting income that you had since 11/13??

    Also your plan to bump your income to $25k for 2 months wouldn’t work with any bank I’ve worked for (and as a contractor, I’ve underwritten mortgages for many banks including all the big ones). Even if its salary on a paystub, its still income from self employment and the underwriter should at least be looking at 1 years average. But maybe you’re had different experiences.

    1. Interesting isn’t it? Yet, JPM Chase raked me over the coals by making my send the pay stubs, screen shots, and checking/savings statements, and offer letters of ALL my freelancing income/jobs, even though they said it doesn’t count. You know why? It’s b/c, it still does count at the margin. They want to see a history of income generating power. They know the rules are tight, but they do have wiggle room, which makes my rejection even worse.

  25. Even Steven

    You mentioned both reasons why big banks are not lending as much. The Dodd-Frank act had a major impact on how banks make money and the regulation caused for mortgages. The other reason is with big banks you are rarely working with 1 person or even 1 location. For example I might start my loan with the bank in Chicago, which gets passed on to an underwriter in Iowa, both parties are separate from each other so they have checks and balances, the whole time another team of internal auditors will be checking the work of each one, not to mention the federal regulator that will be coming in to check their work. The risk is not worth the reward to make an independent decision.

  26. @ Sam
    @ Mr. 1500

    It is not the banks fault at all. Google the term “qualified mortgage”.

    The government has created new rules that basically say if you underwrite a loan using the qualified mortgage standards (one of which is the 2 years employment rule), then basically the bank is protected should the loan default down the line (the government can’t come back and say the bank was reckless when making the loan).

    All loans being originated with intentions to be sold into the secondary market (99% of mortgages) are essentially being underwritten to this standard.

    The banks don’t necessarily have to underwrite every loan to these standards. But if they don’t they lose the protections they gain if they would have underwritten to the qualified mortgage standards.

    1. Good to know. The most annoying thing was even though they discredited 100% of ALL my freelance income over the past 18 months, they still wanted ALL of the proof that I made such income. This was the point that pissed me off the most.

      I’m assuming banks are stricter in non-recourse states as well.

      1. That drives me bananas, too, when the banks require documentation of income that they’re not even relying on to make the refinancing decision. The last two times I refi’d my house, I was able to qualify for the loan with just my W2 income, not including partnerships, self-employment, etc. Nonetheless, just before closing time, the bank insisted on receiving copies of all of my K-1s from every partnership and a P&L for my self-employment income. Grrrr.

  27. I was seriously contemplating buying a house this summer through one of several institutions I bank with. I just realized that I had only spoken to the mortgage person, AKA the sales person, who stated that my new W2 job of only several months would not impact my mortgage application. I’ve always read that one of the minimum qualifications for a W2 job to be even applicable to the process is two years. Just a reminder that we have to stop listening to what we want to hear to try to fool ourselves.

    1. This isn’t true. Self-employment income needs a longer history, but you only need 60 days (or a contract/offer letter in some cases will suffice) of W2 or employed wages history to qualify. This is how people move and buy a home soon after, which is very common.

  28. “Due to the rejection, I will crush my other $92,000 rental mortgage by June 15. I’m also motivated to make more money so that I never get rejected again”
    I love this attitude. So many people today allow life to happen to them.

    Run into an obstacle? Great, find a solution. Don’t complain about it on reddit or facebook, go out and take care of your business by being an active participant in your future.

    Thanks for the motivation.

  29. We were rejected last year for a home equity line of credit of $150K on out 1.2 mil home. We are looking to make some remodeling, and I refuse to do it with money that cannot be at least in part tax-deductible. We were willing to take a smaller amount of credit, but they didn’t even give us the option. This was with Bank of America, with which we have been banking for the past 18 years and who hold all are Bank accounts, including the business ones. Both mine and husband’s credit scores are in the 800 but… we are both self-employed. Always have been, always will. And even though we make a very good income, have 3 car loans, credit cards that we pay off each month, an additional second home that is paid for and an office building that we own debt-free, they believe we are too much of a risk. Never mind we’ve been paying mortgage for 15 years without a hitch, even paying more than the minimum every month.
    We were actually considering trying it again with a different bank, because we were pretty mad at Bank of America, but after reading your post, I’m wondering if going online would be a wiser option…

    1. Are you sure that taking on debt to “make renovations” is such a good idea? The tax deduction benefits are outweighed by the interest costs in my opinion. You’re saving $1 in tax but giving $2 to the bank in interest.

      It’s a fools game to remain in debt your whole life to save tax.

  30. Ahhh, thanks for giving me the opportunity to vent!

    I’ve done at least 10 deals with the National Bank of Kansas CIty (NBoKC). Some of them were refis while others were straight up purchases. The common thread in all of those deals was that I had W2 income.

    Recently, I kept my same consulting job, but now have a corp-to-corp relationship. I negotiated a significantly higher rate, but everything else stayed the same.

    A couple months ago, I went back to NBoKC to see if I could get a loan for property. The answer was a stiff No. This is despite the fact that I have healthy income (yearly gross is about the same as what I wanted to borrow), have an 800+ credit score, a million in the bank and would have put 50% down. They were very clear that they couldn’t lend me any amount of money until I had 2 years under my belt at my current work situation. Really NBoKC, really?!?

    It cracks me up. in 2006, a jobless cow with a 600 credit score could get a mortgage (“Just sign here Mr. Cow!” “Moooooooo!!!!”). The pendulum has clearly swung too far in the opposite direction. Seems like an opportunity for someone though. Lending Club and Prosper, how about mortgages?

    I’m a bit disappointed that I can’t leverage debt at these incredibly low rates, but like you’ve already said, the banks are the real losers.

    1. Your situation is more unbelievably stupid than my situation. A bank you’ve done 10 transactions with, REJECTS you for borrowing an amount EQUAL to your annual gross income is just so dumb.

      Social lending is going to take so much market share from the banks over the next 10 years.

  31. I’ve been buying investment properties with commercial loans from a couple of regional banks. Relatively easy. I’ve also been trying refinance my own home since December, but that’s been a huge pain, and I don’t know if I’ll get there.

    First, it’s (on a ranch) not conforming, so I can’t get a conventional ((FNMA) mortgage that the originating bank would likely resell. It needs to be a portfolio loan that they will keep and service, so they require a higher rate and shorter term. Second, the home needs foundation repair which I’ve had scheduled for 3 months, but the rain keeps delaying it. I say needs, but the house is livable and has appraised for 35% more than the mortgage amount. This, after I surveyed out most of the additional acreage.

    My finances are similar to yours except that I have less liquidity(cash or equivalents), and more W2 income. Like you, I also have a strong balance sheet and credit.

    It’s been frustrating. But again, much easier on the commercial side, despite higher rates. The returns justify the rates, though. I.e. around 5% for mortgages and construction loans. Actually more construction financing than buy and hold, but the rates are about the same.

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