Refinance - what if you apply and don't qualify? (home loan, credit, fees)

[sloejelly]

We have a house (in CO) on a fixed term 30 year loan. We've had it 12 years, the loan is in excellent standing (we're about 3 years ahead) and we have, at a guess, about 60-65% equity in the house.

We want to refi, as our rate is currently up over 6%.

However, we now live overseas and have no US income (other than the rental income from said house, which of course is in the negative due to the tax deductions). We do have reasonable overseas income (which is properly declared on our US tax returns).

Are we likely to get a refi based on overseas income? I have the paranoid thoughts that BofA is likely to say we don't qualify for ANY loan and knock us back -- please tell me they can't take away or renegotiate our existing home loan if they do knock us back on a refi??

Thank you in advance, the great hive mind.

[chet everett]

First of all there is ABSOLUTELY NO REASON AT ALL to stick with your current loan servicer to do a refi. In fact, given the horrendous record that BofA has in massively screwing up every kind of loans I would be EXTREMELY hesitant to even approach them for any kind of refi EVEN IF I was a "plain vanilla" kind of borrower.

Given that the OP is clearly NOT a plain vanilla kind of borrower I would strongly suggest contacting an experienced mortgage broker. You will probably NOT qualify for generic owner occupied financing HOWEVER given that you have EXCELLENT EQUITY and I assume stellar credit (anyone that can afford to be three years ahead in year 12 of their mortgage and live abroad is unlikely to have excessive debt in my experience...) and fully documented income (really ought not matter that it is from overseas employment AS LONG AS it does not appear that you are going to be leaving the country any time soon..) you should be in good shape for a refi.

I have to comment that TOO MANY PEOPLE assume the best place to start with a refi is with their current servicer. THIS IS FALSE! In the vast majority of cases the loan itself is no longer held by the servicer and they have ZERO incentive to "keep you under their umbrella" unless you are some very high net worth individual that they want to manage all your assets. In general, smaller more agile lenders that have better systems will beat the pants of the troubled loan servicers like BofA. Mortgage brokers know this because they deal with a variety of lenders EVERY DAY and they see that the rates and terms of the more "brand name" lenders are often the WORST so much so that MANY such lenders have CLOSED DOWN their "wholesale residential mortgage" operations. Thus if one goes into a "name brand" bank's local office they will be bombarded by offers to refi by the people working there. The big banks' marketing people know that only people that do not "shop around" and are pressured into an "impulse situation" are likely to accept their higher rates / less attractive terms...

I will also give a nod to SOME credit unions and sub-regional type banks BUT for those are underfunded (and there are many...) they do not have the ability to make loans at as an attractive set of rates / terms as the lenders that are gaining scale with their quieter mortgage operations. This is especially true for folks that have good income / good credit / good equity but unusual circumstances such as the OP -- think about it, if the lender is smart they can hold this "good risk" type loan in their portfolio and it is pretty much guaranteed income, the undercapitalized lenders pretty much have to resell every loan and if an investor sees a non-owner occupied home in the group they will bid down that loan to the point where it is unprofitable unless the originator tacked on such high fees / rate penalty that it was a bad deal for the borrower.

All things considered if the OP is currently over 6% and essentially ready for a 15 year loan the ought to be offered a rate that is approximately 1.5-2% below where they are at. If they were occupying the home they could expect something even better.

Finally it is NOT paranoid to thing that some dunce at BofA will rake you over the coals if you call asking to refi and you are no longer owner occupied. In a technical sense they are within their rights to cancel you current loan as change in residence status is generally a legitimate reason to call your loan but as a practical matter they ARE making money on you currently and you have NOT demonstrated any increased risk of default. Given your extremely high equity any actual banker at BofA or anywhere else ought to realize that the chances of you defaulting are essentially NIL but the scripts that the mega banks give to their front line phone jockeys are not designed for anything other than the most narrow legal limits. I would recommend STAYING AWAY from any contact with such buffoons. Even if their automated phone systems call YOU looking to refi (with their ridiculously high fees the marketers at BofA see this the origination of refis themselves as a "profit opportunity" whereas smarter lenders understand that lower rates will help the borrower be a wealthier customer...) DO NOT SPEAK TO ANYONE FROM BofA!

[Lacerta]

I don't know about the overseas income part. Never run into that one on anyone before. My personal guess would be that if you are still filing US tax returns every year, and reporting that income, the banks would probably treat it the same as domestic income. But I don't know that for sure. Lending requirements are soooo tight right now, that if you don't fit exactly into their little boxes, you either get rejected, or at least have to jump through enough hoops that you start turning into a dolphin.

Actually, though, I don't know that it would be worth it to refi if you are not occupying the home. Non-owner occupied rates are higher than owner-occupied. A good rate right now on a 30 year NOO is around 4.75% I think. You might be better off to put the amount of the closing costs toward the loan now, and cut another year off. If you were going to switch to a 15 year, the rate would be better, and might make it worth it.

Another problem is, are you sure you have 35-40% equity in the house? I bought mine 8 years ago (before the boom) with 20% down, and have paid some extra over the years, and with the loss in values in recent years, I now only have about 7% equity. I tried to do a refi, thinking I could bring a little bit to the table and meet the 20% equity my lender requires, but my appraisal ended that. Some banks are requiring more than 20% down for refis, even up to 35%.

I feel your pain. I'm at 5.75% myself.

[sloejelly]

Thank you, folks, for the careful and thoughtful replies so far.

(really ought not matter that it is from overseas employment AS LONG AS it does not appear that you are going to be leaving the country any time soon..)

We're overseas at the moment, and so it could be difficult to even apply for a refi, given that we can hardly stump up to the local office to sign things. We are employed and living in Australia. So I would imagine that any US mortgage crowd would think that our Oz income stays in Oz (which it generally does) and so our US income is not enough to fianance a loan. Obviously, practically speaking, that is not true, as this has been the situation for some years and our loan is in good standing.

My guess about the value of the house was taken on recent sales on Zillow. Not very scientific, I do agree, but even taking a low figure valuation from Zillow, our equity would have to be about 60%.

I hear you about BofA. Bastards. However, they inherited our loan from another bank.