Ask Stacy: Why Can’t I Refinance My Home?

She's got good credit, but her lender refuses to refinance her mortgage. If it would lower her payments, why wouldn't they be happy to do it? Here's some sound advice for anyone who borrows.

Ask Stacy: Why Can’t I Refinance My Home? Photo (cc) by crabchick

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. It’s a Fannie Mae mortgage, and four years ago both of us were working. Now we’re retired. They claim we don’t bring enough money in to refinance. We’ve been paying the large payment every month, no matter what. Don’t they think that maybe paying a lesser amount each month would help us stay out of trouble in the foreseeable future?

Do you know who we can get to help us (at no cost) to refinance and pay a lower mortgage rate? We would be very grateful for whatever help you can give us.
– Mary

Reading this brought me back 20 years, to a time when I had a very similar situation.

In 1991, I quit my job as a stock broker 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. No dice.

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 never enough to get a loan, including a refinance rendering it more affordable. Why? Because you can take the next plane to Vegas 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 drop a source of 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 the lowest rates ever.

What can Mary do?

When this happened to me, I sold half my house to my roommate – a long-time friend – then used his income to qualify for the refinance. Everyone was happy. I got to refinance to a lower rate and keep partial ownership of my house, and he got to stop paying rent and start gaining equity. This worked out especially well, since I was planning on leaving town to pursue my new career. Having him as part owner ensured the house would remain well-maintained.

Mary could try a variation on this theme by seeking a co-signer: Perhaps she has a 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. For example, a few weeks ago I did a story called More Help for Homeowners: HARP 2.0. It’s about a program designed to help underwater homeowners – people who owe more on their homes than they’re worth. But if she qualifies, there’s no minimum credit score, qualifying income, or appraisal required. I won’t repeat all the details from that post here, but she should definitely check it out.

Even better, she can simply call the 24-hour Homeowner’s HOPE hotline, which offers free advice from government-approved housing counselors. They’ll be able to tell her what, if any, programs she may qualify for.

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. It may be small comfort, but at least she’s not alone: There are plenty of people these days tantalized by historically low rates, but they’re unable to qualify for them.

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