Can I Refinance if I Am Laid Off?
- When you apply for a refinance loan, the lender uses a debt-to-income ratio (DTI) to calculate the maximum monthly payment that you can reasonably afford. Guidelines vary from lender to lender but typically your monthly debt payments, including your mortgage, cannot exceed 43 percent of your gross monthly income. Some lenders even limit DTI ratios to 36 percent and in addition to the DTI restrictions your actual mortgage payment cannot exceed 29 percent of your gross income.
- Lenders review your last two years W-2s and your most recent pay stub to verify your income. However, if you have been recently laid off you can show your lender your last paycheck and based on the slip the lender might assume that you still hold your job. To prevent borrowers from lying about a loss of employment, lenders contact employers prior to closing on the loan to ensure that the borrowers are still employed.
- You can use other non-salary income, such as disability income, to qualify for a refinance. If you are married and apply for the loan jointly with your spouse, you can rely on your spouse's income to qualify for the mortgage. However, you can only use verifiable income and not income from informal rent agreements you have established with your children or other people living in your home. Additionally, most lenders do not accept income from investments as evidence of income for loan underwriting purposes.
- In 2010, the federal government began working with lenders to help home owners struggling to maintain mortgage payments. The Home Affordable Refinance Program has no DTI restrictions, which means you can use the program to renegotiate your loan even if you have very little income. However, you or your spouse must have some kind of income to qualify. If you currently have no source of income, your lender may agree to to temporarily suspend payments but lenders are not required to enter into such arrangements.