When you are out of work, you can very quickly find yourself swamped by bills that you cannot afford to pay. In theory, you could cut costs by refinancing your mortgage into a new low-cost loan. With lower payments, you have a better chance of staying on top of the loan. However, you still need to have some verifiable income, although that income need not come in the form of a salary or wages.
If you currently have a joint mortgage, nothing in the lender's rule book says that both you and your spouse have to sign on a refinance loan. You could leave your name off the loan altogether or add your name but just qualify on the basis of the income your significant other receives. If both your names appear on the loan, the lender divides your total debt payments into your combined income to calculate your debt-to-income ratio. Rules vary between lenders, but you normally cannot get a loan if your DTI exceeds 40 or 45 percent. If your partner brings home the lion's share of the income, then you may qualify for the loan even if you have not worked in years.
You can use income other than wages to qualify for a loan. You can use long-term disability or Social Security benefits to qualify as long as you have been receiving payments for at least two months. Child support, alimony and payments you receive as a beneficiary of a life insurance policy are also factored into the equation. If you own a rental property, you can also use that income for your mortgage as long as you report the income on your taxes and have been receiving the income for at least 24 months. You can even report dividend payments and interest as income although rules on verification vary between lenders.
Lenders realize that some people do not need to work because they have a lot of cash and assets. You can qualify for a loan on the basis of retirement assets, but only if you can access those funds without penalty. This rules out most people under the age of 59 1/2 because you incur a 10 percent penalty for accessing retirement money unless you become disabled. You can get a loan if you sold a small business as the Internal Revenue Service regards the sale proceeds as income. The lender multiples the proceeds by 70 percent and then divides that figure by 360. The lender uses the final figure as your income for DTI purposes. Sadly, you cannot use cash that you have in non-retirement bank or brokerage accounts to qualify for a loan.
If you receive or are eligible to receive unemployment benefits, then you may qualify for a federally backed refinance through the Home Affordable Unemployment Program. The lender's cap your monthly payments at 31 percent of your income for a period of 12 months. Thereafter, the lender must review your situation and either modify the loan or suspend your payments. You can only apply for one of these loans with your existing lender. Unfortunately, many lenders do not offer these loans so HAUP may not work for you.
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- Financing Income Properties
- Can You Refinance Without a Spouse's Signature?
- Non-Occupant Co-Borrower Mortgage Regulations
- FHA Guidelines for Employment Gaps
- The Tax Effects of Refinancing With Cash Out
- Do Mortgage Lenders Verify Your Marital Status?
- If I Refinance, Can I Have a Co-Borrower Removed From the Loan?
- Can I Share My Interest Deduction?