MeFi, help me ReFi

September 15, 2011 9:02 PM

We're about to refinance our mortgage, and have two questions about assets and income, and how they affect the application.

My partner and I both own our apartment, and are both on the mortgage. I have a stable, full-time job and make roughy 3x the income of my partner, who works various contract/short-term jobs.

The mortgage is a 30 yr fixed @ 6.75%, and we're 3 years in.

Questions:
1) My partner is currently eligible for unemployment insurance. Should she file? The extra income would certainly be welcome, but it's not a significant impact on bill-paying/lifestyle (she still has some contract work).
2) We're also looking at a long-planned kitchen renovation to the tune of roughly $15k. We'd have about $25k liquid cash afterward. Should we hold off? I realize the answer is generally "yes", but I'm wondering how significant this is.

posted by anonymous to Work & Money (1 answer total)

I am not a mortgage broker, but I've looked around these things often enough. Generally, income has to be from a steady job to count; getting those "NINJA" (No Income No Job No Assets) loans has gotten almost impossible since the lender pretty much has to loan you the money themselves instead of securitizing it or selling to Fannie Mae / Freddie Mac. The thing is, you can technically qualify for a way bigger loan than most people would feel comfortable paying, so knocking 25% off that still leaves a pretty big loan. Conforming loans (which typically have the lowest interest rates, and currently come with the advantage that you can refi even if you're 25% underwater) will let you get to something like 50% of your take-home pay (again, only counting W-2 income). Call it "aggressive," I would call that crazy. So probably it doesn't make a difference.

As for your cash situation, you're going to need some cash for closing, on the order of 2% of the loan. You can roll a certain amount of that into the rate, but typically not all. On top of that the lender will often ask to see a certain number of months worth of payments in your savings. Hold off. A refi is fast, we have been very happy with aimloan.com and they claim to do 30 days (that was our experience). I guess my question would be, if you renovate the kitchen, what happens if you need a new air conditioner or a big special assessment from the condo board comes through?

Definitely get that refinance done, though. With good credit there is no reason you should be paying more than 4.75%, assuming 740+ FICO scores.
posted by wnissen at 10:33 PM on September 15, 2011