Mortgage with no earned income?

[cardude]

Has anyone here on the board been able to qualify for a mortgage with no earned income? I am still trying decide whether to refi or not, and one of the reasons I'm considering doing it NOW instead of later is because I'm approved right now because they are going off my last two years of tax returns when my business was doing well and I had plenty of earned income. I am in the process of closing my business (didn't tell the lender that), so for 2009 I will have no income to speak of. I will still have plenty of cash, interest and dividends to cover the payment, but no earned income to speak of.

The argument for waiting is because I'm also trying to sell my current house and didn't want to pay the fees for the refi it sells, but I'm not sure if that will even be a possiblity in this market. The refi will cost me 8K in fees total. Should I just pay the fees, refi, and think of the 8K as insurance in case the house never sells? The refi will lower my payment 42% (longer term plus some cash) and make our budget work without my business income. Without the refi our budget is all out of whack due to the loss of my business income.

Another question I just though of:

Am I doing something illegal my not mentioning to the lender that I'm closing my business and my future income will look nothing like my past income?

 

[REWahoo]

Another question I just though of:

Am I doing something illegal my not mentioning to the lender that I'm closing my business and my future income will look nothing like my past income?

If the lender doesn't ask, you aren't legally required to tell.

That said, the ethics police will be along shortly to pull you over and give you a warning ticket...

 

[ziggy29]

Am I doing something illegal my not mentioning to the lender that I'm closing my business and my future income will look nothing like my past income?

No, not unless you're asked to sign something that says you won't be doing this in the future. Unlikely, though.

 

[cardude]

No, not unless you're asked to sign something that says you won't be doing this in the future. Unlikely, though.

If the lender doesn't ask, you aren't legally required to tell.

OK. Sounds reasonable.

But, if you two were in my shoes would you refinance now and get the budget in line in case we have to stay in the house (spending 8K in fees plus 75K in cash to get the loan within limits), or do nothing and risk that the house sells in a reasonable amount of time?

 

[REWahoo]

In this environment I'd hang on to the cash.

 

[youbet]

You aren't giving us enough clues unless you made your selling intentions known someplace else.

Are you pricing your home to sell in today's market conditions because you need/want to unload it and move on? Or are you pricing it to sell at a price that meets your profit expectations but may be unrealistic given the real estate market in your area? If the former, I wouldn't refinanace. If the later, I would refinance.

 

[Bikerdude]

I would do it now while you can show "earned income". I had a very difficult time when I did a refi and all I had was my pension for EI and this was when they were giving loans away. I finally had to use Schwab Bank because I did most of my business (and had most of my assets) with Schwab.

 

[cardude]

In this environment I'd hang on to the cash.

If I hang on to the cash (76K) that gives me 47 months to subsidize the amount we would be over budget according to where I want the SWR to be. Surely I could sell the house in 47 months.........

You aren't giving us enough clues unless you made your selling intentions known someplace else.

Are you pricing your home to sell in today's market conditions because you need/want to unload it and move on? Or are you pricing it to sell at a price that meets your profit expectations but may be unrealistic given the real estate market in your area? If the former, I wouldn't refinanace. If the later, I would refinance.

I really don't know. The realtor thinks it will sell, and the price he suggested is lower than what I would have hoped for, but acceptable. But, he's the realtor and that's what he is paid to say-- like asking the barber if you need a haircut. In his defense, he has sold a few in our neighborhood the last couple of months, but ours is a more expensive house in comparison.

It's just this crazy timing issue of having to close the business and having no earned income that's got me freaking out and not thinking clearly.

I would do it now while you can show "earned income". I had a very difficult time when I did a refi and all I had was my pension for EI and this was when they were giving loans away. I finally had to use Schwab Bank because I did most of my business (and had most of my assets) with Schwab.

That's what I was worried about. I have great credit (800+ beacon) and a decent amount of liquid assets, but I've never not had any earned income before so this is new to me.

 

[REWahoo]

If I hang on to the cash (76K) that gives me 47 months to subsidize the amount we would be over budget according to where I want the SWR to be.

A four-year cushion would make it very difficult for me to turn loose of the cash.

 

[youbet]

I really don't know. The realtor thinks it will sell, and the price he suggested is lower than what I would have hoped for, but acceptable. But, he's the realtor and that's what he is paid to say-- like asking the barber if you need a haircut. In his defense, he has sold a few in our neighborhood the last couple of months, but ours is a more expensive house in comparison.

.

Don't refinance if your intentions are to sell the house. You're letting the "no earned income" issue dominate like the tail wagging the dog. You plan to sell, not stay long term. Why pay the costs of the refi?

Let me rephrase your statement to illustrate my point of view on what you're doing to yourself:

"I can currently refi my mortgage to better terms at a cost which makes sense if I stay in the house. But, I'm planning on selling the house, so I guess that makes no sense. But I may not qualify for the refi later, so maybe I better do it anyway."

What's your objective? Sell the house? Refi the mortgage and stay in the house?

Go make your objective happen.

Edit: I seem to recall from another thread you mentioning that your DW doesn't want to sell and would prefer to stay. Do I recall correctly? How is this influencing your inability to shake the desire to refi, an act which implies you think you'll be living there for a while?

 

[FinanceDude]

Cardude:

Three words for you: CASH IS KING

I used to know an old guy that taught me a valuable lesson. His famous line? "If you have a year of living expenses in cash, you can tell your boss to go to hell. If you have two years of living expenses in cash, you can tell the world to go to hell".........

I guess he has a curmudgeon certificate like Uncle Mick..............

 

[freebird5825]

FWIW, check out "Lender Do's and Don'ts" halfway down the page at
Mortgage Discrimination
FTC is the enforcing agency.
As far as income goes, several types "have to be considered" by the lender in the same way as earned income.

 

[cardude]

I can currently refi my mortgage to better terms at a cost which makes sense if I stay in the house. But, I'm planning on selling the house, so I guess that makes no sense. But I may not qualify for the refi later, so maybe I better do it anyway."

What's your objective? Sell the house? Refi the mortgage and stay in the house?

Like I said, I'm a bundle of emotion and not thinking very clearly. My objective is to sell the house and find something cheaper.

I seem to recall from another thread you mentioning that your DW doesn't want to sell and would prefer to stay. Do I recall correctly? How is this influencing your inability to shake the desire to refi, an act which implies you think you'll be living there for a while?

Yes, this has been an issue. She understands that the numbers don't work with the current house, but is sad to leave it. She says she understands why we have to get a less expensive house-- so the money that we saved over the past 20 years can last us the next 40+, but she's not really excited about it. Part of our problem is the speed of this whole thing-- we were rocking along 5 months ago, thinking we would live in this house until the kids were out of high school then downsize. Now our business has unraveled, our portfolio has dropped 40% and now we have to move. So, I think she is just stunned. I am as well, but I'm not as attached to the house.

 

[youbet]

Like I said, I'm a bundle of emotion and not thinking very clearly.

I understand, believe me. My household is all a twitter over less impactful decisions like whether to take vacations during this downturn, etc. I can imagine what it's like at your house.

I don't think your issue is refi or not. I think the issue is sell the house or not. And you need to get that settled to make your refi decision.

Not trying to play "Dr Shrink" here, but I sense you're letting the refi decision act as a surrogate for the sell or not decision. If your intention is really to sell and move to a lower cost house in a lower cost area, that should be occupying your mind and receiving your attention.

 

[cardude]

Not trying to play "Dr Shrink" here, but I sense you're letting the refi decision act as a surrogate for the sell or not decision. If your intention is really to sell and move to a lower cost house in a lower cost area, that should be occupying your mind and receiving your attention.

I think you are right. The refi deal is a side issue that is complicating my thought process. I'm going to drop that idea, conserve the cash, and concentrate on selling the house. If it takes me 4 years to sell the house, God forbid, I'll just use the 76K I saved by not doing the refi to make up the difference we will be out of budget. Plus, if it takes 4 years to sell the house, my DW will be happy!

I need to get drunk. Any takers?

 

[Bikerdude]

OK, lets take a deep breath and think this thing through.

1.) You said your payment would drop by 42% after the refi. What's the payback on the 8K?

2.) Have you talked to a Realtor to find out what the realistic selling price range is for your house. Make them back it up with comps. Use several. Is the price they tell you acceptable to you?

3.)If the refi lowers your house bill then why not take it slow here and not disrupt the family unit in one fell swoop. It could be hazardous to your marriage. I recall you have plenty of assets to keep life normal... for a while anyways. I also recall your wife was looking for work. I guess it ultimately depends on how much the reduced refi housing costs vs a smaller house.

BTW. I'll have that drink if you're buying.

 

[al_bundy]

almost every mortgage says the bank can pull your taxes and access other financial data about you as long as the mortgage is outstanding. if there is something in the note about the business you may get in trouble

 

[cardude]

OK, lets take a deep breath and think this thing through.

1.) You said your payment would drop by 42% after the refi. What's the payback on the 8K?

2.) Have you talked to a Realtor to find out what the realistic selling price range is for your house. Make them back it up with comps. Use several. Is the price they tell you acceptable to you?

3.)If the refi lowers your house bill then why not take it slow here and not disrupt the family unit in one fell swoop. It could be hazardous to your marriage. I recall you have plenty of assets to keep life normal... for a while anyways. I also recall your wife was looking for work. I guess it ultimately depends on how much the reduced refi housing costs vs a smaller house.

1. If I figure the new rate on the refi at same term and ititial loan amount as the original loan, the 8K fee would take 16 months to payback. When I said the refi I was looking at would make the payment 42% less that was because it was going to a 30 year term from a 20, and the amount financed was less due to the the additional $68K I have to put down to get to the 417K non jumbo level.

2. Not yet. That meeting is scheduled for this week. Houses are selling in my hood, but the price per square foot is less than what he said ours would sell for. Our is on the "fancy" street (Doctors-row kind of thing) however, and those houses do bring more per square foot. Our neighbor just put a sign in front of their house for almost the same amount he said ours should bring. Theirs is FSBO however, which makes me wonder because he is a doctor and NEVER home so I think they may struggle selling it by themselves.

3. Hazordous to my marriage. Yeah, that's something I want to avoid at all costs.

BTW. I'll have that drink if you're buying.

Yes, I'm buying. Let's all meet up and drink to our future!

 

[Frugality_of_Apathy]

If the lender doesn't ask, you aren't legally required to tell.

That said, the ethics police will be along shortly to pull you over and give you a warning ticket...

NAh you call the moral police for something like that. The ethics police will show up if the paperwork says stuff like you provided full disclosure even though they didn't actually ask you about it and they consider the information they gave you full disclosure.

 

[Keim]

I just had to second this quote. I did just that last October. I'm still looking for permanent work, but haven't regretted the decision for a moment. Having the cash (and a very supportive wife) made it possible.

Being a dedicated LBYM'er helped, too. Didn't have to cut monthly expenses by much. And, knew exactly where to cut.

Cardude:

Three words for you: CASH IS KING

I used to know an old guy that taught me a valuable lesson. His famous line? "If you have a year of living expenses in cash, you can tell your boss to go to hell. If you have two years of living expenses in cash, you can tell the world to go to hell".........

I guess he has a curmudgeon certificate like Uncle Mick..............

 

[cardude]

Thanks for all the thoughful replies. I've decided to just concentrate on selling the house, drop the refi idea, and hold on to the cash. The realtor is coming over tonight. He sold it to us and really knows the house, and he is plugged into the "Dr. Scene" and knows who is moving to our town.

Since I will be unemployed I may not be able to get a new loan if/when I do sell this house and that had me freaking out a little, but then I realized I can just rent and keep my money in cash. Maybe I can find a deal on a rental on a nice house that someone can't sell. I don't want to wish that on anyone however. Hope mine sells...........

The upside to all this is if we can sell our house DW is thinking she may want to live in a little town in Costa Rica where we have some friends living now. Maybe try it out for a year and see how it goes. Our friends are looking for someone to help out in the real estate office they work in, so I may even have a job waiting for me. A job where I can wear shorts and flip-flops! The town has a private school that seems to be OK so the kids will not fall behind, and they can learn Spanish. Seems to me like a good time to try something like this.