Getting a mortgage refinance can be difficult if you are a retiree. Many people do not have a regular source of income after they retire from active employment. They might have saved enough money to lead a comfortable retirement life, but if they don’t derive a regular income from those savings, their chances of getting a refinance are pretty low. In fact, there are countless millionaires whose refinance applications got rejected because they couldn’t show a regular source of income.
If your refinance application has been rejected because you do not have a regular income, you should consider the HARP program. It is designed for people who have negative equity on their homes – meaning the value of their home is less than the amount they owe on the mortgage.
Note that in order to qualify for refinance under the HARP program, you should have a mortgage backed by Fannie Mae/Freddie Mac. Since most loans in the country are backed by these entities, this is unlikely to be a problem. You should check out the official HARP website to know if your loan is backed by Fannie Mae/Freddie Mac.
Before the HARP program was launched, lenders calculated a borrower’s eligibility for refinance by calculating the loan-to-value (LTV) ratio. If you have negative equity, your LTV ratio will be high and in that case lenders can reject your refinance application. When the value of properties was falling during the housing bubble, many borrowers had a high LTV ratio. Consequently, they couldn’t take advantage of refinancing. This forced the federal government to use another measure.
The debt-to-income or DTI ratio, doesn’t consider the current value of your property. Instead, it compares your debt against your income. As a result, if you have a source of income, it allows you to refinance even if the value of your home has decreased over the years. The HARP program helped numerous people who had been underwater on their loan.
It is also helpful for retirees. Under this scheme, you can qualify for refinance even if your debt to income ratio is 45 – 50%.
Benefits of HARP refinance
You don’t have to be underwater on your loan to seek a refinance. In fact, refinancing is the ideal option if the rate on your existing mortgage is higher than the current interest rate.
In addition, when you refinance, you can reduce the term of your loan. Lenders like mortgages of shorter durations because they can recover their money faster. In addition, a short term mortgage doesn’t give the borrower enough time to default.
However, lenders want borrowers to show regular income. If you don’t have regular income, your application can be rejected even if you have an excellent credit score and enough savings to pay off the loan.
On the bright side, the lender doesn’t really care what your sources of income are. If it comes regularly, they are likely to approve your loan application. So, a regular income that you derive from your savings will satisfy most lenders. You should contact your lender for more details.
The HARP 2.0 program is expected to be succeeded by the HARP 3.0. Borrowers who took out their mortgage before May 31, 2009 should be able to get refinance under HARP 2.0 program and enjoy lower rates. If you paid your last 6 months’ EMI regularly, you should be able to get the best rates.