Streamline Refinancing

By Edith Lank

August 7, 2016 5 min read

Dear Edith: Do you have to have proof of income if you refinance when applying for a VA loan? — C. L.

Answer: If you already have a Veterans Affairs loan on the property, the VA requires only that you are looking for a rate reduction and have a clean payment record with no more than one late payment in the past year. This simplified process is known as streamline refinancing.

Lending institutions that handle VA loans, though, are free to set their own standards. Some would require a credit check or an appraisal on a refinance. You would want to shop around or consult a mortgage broker.

If, on the other hand, you presently have a different type of mortgage and are looking for a VA to refinance it, you'll have to meet the original requirements as if you were starting from scratch.

Pre-Non-Nuptial Agreement

Dear Ms. Lank: My friend and I are ready to buy a house together but the problem is in getting a mortgage. She has good credit. Mine got messed up a few years ago when I was in another relationship. It is partly straightened out, but not perfect yet. I know she can get a mortgage by herself, but I will be paying half the down payment and sharing the mortgage payments so I would like to be officially one of the owners of the house. This is OK with her.

Is there any way to arrange this, if I still have bad credit? — P. I., to www.askedith.com

Answer: If your friend has good enough credit and income to qualify for the mortgage on her own, there shouldn't be any problem. You can still be named on the deed as a co-owner. You'll "go on the deed but not on the mortgage."

She could be taking on additional risk, though. If anything later went wrong between you, she'd be personally liable for the whole debt, but entitled to only half the proceeds from the sale of the house.

Before unrelated persons buy real property together, it's always prudent to sign up the equivalent of a prenuptial agreement. Let's call it a pre-non-nup. A lawyer could help the two of you set out in writing just what would be fair in the remote possibility that you ended up breaking up.

Suspicious of Reverse

Dear Mrs. Lank: I see ads for reverse mortgages on TV all the time, and I would like your opinion. I've heard they are scams and expensive, and I don't understand why anyone would get one. Do you think a reverse mortgage is a good thing? I am 80 years old and still in my own house. Is this something I should look into? — J. S.,to [email protected]

Answer: The answer is a firm "it all depends." As with many financial decisions, what's perfect for your neighbor might be all wrong for you.

Reverse mortgages were first instituted with the admirable goal of enabling elderly homeowners to remain in homes they couldn't otherwise afford, even though they couldn't prove enough dependable income to qualify for a regular mortgage. The classic example was someone who owned an expensive house, free and clear, but didn't have the cash to buy groceries. Before reverse mortgages, the only solution was to sell the house, take all the money and leave.

In the early years there were indeed abuses — lenders who would then turn around and pressure the homeowner to invest the proceeds in expensive and questionable investments. With a reverse mortgage no payments are made while you remain in your home, so some borrowers didn't realize how the debts were piling up with high closing costs and above-market interest rates. And if the borrower died, a surviving spouse who was under the age of 62 could be required to repay the loan by selling the house and moving out.

Since then, legislation and regulations have eliminated most of the problems. These days, you can even use a reverse mortgage as substantial deposit on a downsized next home. You can opt to receive monthly checks, take out a lump sum or set up a line of credit to be used when you need it. The only requirement is that you show enough income to handle property taxes and insurance premiums.

With an FHA-insured home equity conversion mortgage, it won't even matter if you end up with a debt larger than the eventual value of your property. FHA insurance would take care of the shortfall.

So to answer your question: It all depends. If you're house-poor and would like to tap the money tied up in your home so you can remain there, a reverse mortgage works well. If you don't need additional income, there's no point in piling up a debt against your home.

Edith Lank will respond personally to any question sent to www.askedith.com, to [email protected], or to 240 Hemingway Drive, Rochester NY 14620.

Photo credit: woodleywonderworks

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