Why Can’t I Refinance My Home?

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Couple Elderly w Home
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This reader’s question is a stark reminder of how important it is to consider the implications of life changes before they occur.

Please help! My husband and I are retired and want to refinance to get lower interest. Wells Fargo has refused us, even though we have a great record. Four years ago both of us were working. Now we’re retired. They claim we don’t bring enough money in to refinance. Don’t they think that maybe paying a lesser amount each month would help us stay out of trouble?
– Mary

Reading this brought me back 26 years, to a time when I had a very similar situation.

In 1991, I quit my job as a stockbroker to devote my full attention to Money Talks News. Like Mary, I wanted to get my bills as low as possible, so I applied to refinance my mortgage. It wasn’t big — as I recall, about $50,000. I had more than $100,000 in the bank.

Since I had virtually no other bills, a flawless credit history and substantial savings, I assumed my mortgage company would happily refinance me to a lower rate.

I assumed incorrectly.

My problem was the same as Mary’s: insufficient income. When I complained I had enough money to pay the entire mortgage two times over, they explained that while money in the bank is always nice, it’s not enough to get a loan, even when refinancing an existing loan that would result in a lower payment.

How can this possibly be? Simple: Because you can take the next plane to Monte Carlo and lose your life savings. Income, on the other hand, provides the lender a verifiable source to meet future payment obligations.

In short, lenders like to see savings, but they need to see income.

So here’s a lesson for those of us who may someday leave the workforce to have a child, start a business, go back to school, join the Peace Corps or (as in Mary’s case) retire: If there’s any chance you’re going to need borrowed money, grab it before you lower or drop your income.

Of course, this isn’t Mary’s fault. She couldn’t have foreseen that four years into her retirement, she’d have an opportunity to refinance her mortgage at lower rates.

What can Mary do?

When I was in this situation, I sold half my house to my roommate — a long-time friend — then used his income to qualify for the refinance. I got the lower rate and kept partial ownership of my house, and he got to stop paying rent and start gaining equity.

This also worked out for me because I was planning on leaving town to build my new business and having him as part owner ensured the house would remain well-maintained. Everybody won.

Mary could try a variation on this theme by seeking a co-signer. Perhaps she has an adult child with sufficient income to co-sign her loan. It’s not an ideal solution, because the child will be on the hook for Mary’s mortgage, and that will also reduce their ability to borrow for themselves.

Another possibility is to see if she qualifies for any programs designed to help homeowners refinance. Easy way to do it? Call a nonprofit, free housing counselor. They should be up to date on programs both local and national that she might qualify for.

Most nonprofit credit counseling agencies also offer housing counseling. We partner with a couple of the nation’s biggest. To find them, just go to our Solutions Center and click on “Budget and Debt Counseling” under the Senior Solutions section. (You don’t have to be a senior to use their services.)

And if Mary doesn’t qualify for any program and isn’t willing or able to get a co-signer, she’ll simply have to keep the mortgage she has and chalk it up to experience.

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About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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