Out of curiosity… say a married couple buys house, and pays down the principal substantially by making extra principal payments, and then one member of the married couple loses their job. Since the principal has been paid down, the owners could refinance and lower their monthly payment to make their emergency savings last longer. How would the job loss impact the ability to refinance?
I assume that the lender would want the homeowners to be able to keep their house. And if refinancing helps them do that, then wouldn't the lender want to oblige and allow them to refinance, provided that the spouse who was still employed had enough income to cover the payments?
How does a job loss impact refinancing?
byu/Zestyclose_Acadia850 inRealEstate
Posted by Zestyclose_Acadia850
2 Comments
I’m just going to speak about conventional mortgages.
That’s not how it works – at all. Mortgage companies look at DTI (debt to income ratio), if this hypothetical family was above the DTI when they bought their house and now is trying to refinance but one of them loses a job and they’re now below the DTI threshold they would be completely shit out of luck.
You either qualify for the refinance, or you don’t.
The only thing that matters is if the current joint income is enough for the banks debt to income ratio to fully cover the new loan payment. If the payment is considered too high for the employed spouse it will get denied. They don’t care if it would be more affordable than the current loan unless the new payment falls within their approved debt ratio of your new single spouse income. A refinance is basically a new loan and they would rather get more interest out of you if you are unemployed and a higher risk. You can put your mortgage into forbearance but you will eventually have to repay the unpaid amount.