There 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 Treasury yield falling back down to ~2.4% in 2H2017, 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 FOR REFINANCING
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.
REFINANCE YOUR MORTGAGE BEFORE YOU QUIT
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!
Wealth Building Recommendations
* Shop Around For A Mortgage: LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.
* Invest in real estate more surgically: If you don’t want to constantly pay massive property taxes, don’t have the downpayment to buy property, or don’t want to tie up your liquidity in physical real estate, take a look at RealtyShares, one of the largest real estate crowdsourcing companies today. You can invest in higher returning deals around the country for as little as $5,000. Historical returns have ranged between 9% – 15%, much higher than the average stock market return. It’s free to explore and they’ve got the best platform around.
* Manage Your Finances In One Place: One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
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Updated for 2018 and beyond. Credit continues to remain tight. It’s more important than ever to manage your finances, improve your wealth, and make sure everything is intact. The easy money has been made in the market. We go through 7 year cycles.