Ask Rodkin: How Do I Refinance an Underwater Condo?

This reader owns and rents out a condo, she shares a deed to a second house with her husband, and refinancing is difficult given the couple’s debt-to-income ratio.

Photo: Chris Sweda / Chicago Tribune
 

Q: I have an underwater condo in the city that I purchased on my own; it’s in my name only. I am currently renting it. I own a house with my husband and we are both on this deed and loan.

So, initially I wasn’t able to refinance the condo because it wasn’t my primary residence. Now I can’t refinance because both mortgages show up in my debt-to-income ratio and I am technically penniless. My husband has sole responsibility of paying the mortgage on the house, but the mortgage company won’t take that into consideration.

Any suggestions? The condo is underwater and the interest rate is around 6%!!! I’d love to lower the rate and payment!!! —Katie

A: Katie, has your refinancing lender’s intake person gone over all these details? It seems they’d have a procedure for having you file letters and receipts clarifying that you are not responsible for any of the payments on the house. Most likely, that would entail having you do a quit-claim on the house, where you release all legal claim on it to your husband. There would be other steps involved as well, including getting the lender on the house to remove your name from the mortgage entirely. (This could turn into a complicated situation where the lender requires your husband to refinance that one to get it into his own name.)

I don’t mean to scold you, but if you’re not responsible for paying on the house, it would have been a good idea to keep your name off its mortgage in the first place. Of course, that might have meant keeping your name off the title, too, and that’s un-romantic. Couples often like to have both names on the title as another sign of their commitment.

Another alternative is to go in the other direction: keep your name on the house title and add your husband’s to the condo title, so that your combined incomes are both considered in a refinance application. This may be the less attractive step if your husband has other debts that push his debt-to-income ratio near the limit on the mortgage he’s already covering.

But if your lender hasn’t discussed the details of re-organizing your title and mortgage claims, I would do these things:

• Go to a real estate attorney and ask about getting your name removed from all documents on the house. You can retain a claim over it in some form via your husband’s will, I believe, but disclaimer: I’m not an attorney, so take my statement only as general guidance.

• Go to another refinance lender, explain the state of the titles and mortgages, and ask what they would require of you in order to make refinancing the condo feasible.

And if I were you, I’d make doing this a high priority. If you’re still paying an interest rate in the six-percent range when most lending has been at or below four percent for quite a while now, you’re wasting money on interest payments. Rates have started ticking back up but are still delightfully low. Take advantage of them as soon as you can.

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1 year ago
Posted by adamk

But this doesn't answer the question. I've had the same problem with my condo. I've tried to refi with 3 different lenders my 5.75% 30 yr fixed to 3.25% 15 yr fixed but because the value has dropped (allegedly) 35% since 2005 I can't meet a 20% equity requirement unless I dump thousands at closing.

Shame on me for buying a condo I could afford with 20% equity down and a 30 yr fixed mortgage. Now I'm stuck in it and wasted the last 8 yrs on interest payments.

1 year ago
Posted by Dennis Rodkin

I see your situation is tough, AdamK, but Katie's question was about a debt-to-income ratio, and I did answer that.

On your situation: that drop in value that swallowed the homeowner's equity is pretty much what has locked countless people out of refinancing. You are far from the only one--not that this makes your situation any easier for you.

Did none of the refinancing lenders find that you fit the requirements for a federally backed HARP modification? I don't know the specifics in your case, but I do know that HARP is too strict to help some people who could really use help.

Also, it looks from your message as if you were looking for the very best terms that are available (3.25%, 15-year fixed). While that would be ideal, if it's not available to somebody with your smaller equity stake, did the refi lenders offer you other terms that, while maybe not the very best in the marketplace, would at least bring your payments down? (For example, and interest rate that is above 3.25% but still well below 5.75%.)

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