Before you think about quitting your job, seriously consider refinancing your mortgage. Nowadays, many people are leaving their jobs in search of more meaningful lives. If you’re considering this step, there are two important things to do beforehand to ensure your financial stability. One, you should definitely refinance your mortgage. Lenders see you as a risk once you don’t have a steady job, and without a stable W2 income for two years, securing a loan will be nearly impossible unless you have a significant amount of assets.
Back in January 2012, I sensed I was going to leave my job soon. Having been with my company for 11 years, I was planning to strike out on my own. Knowing this, I realized I needed to reduce my expenses as much as possible. One major recurring expense was my mortgage. Despite the rate having dropped significantly from 5.75% to 2.625% over eight years, it was still a large sum to pay without regular employment income. Every dollar saved on interest was crucial.
As mortgage rates fell, I contacted my bank to see what refinancing options were available. To my surprise, they offered a 5/1 ARM with no out-of-pocket costs, a process that started late in January and stretched into early May. During this period, the bank verified my employment status multiple times, reaffirming the importance of still being employed during the refinancing process.
Here’s why refinancing before quitting is crucial:
1) Proof of income is essential. Banks require a W2 form to see consistent income before they’ll consider your application. The longer your income history, the more secure a bank feels in lending to you.
2) Post-quitting income and expenses are unpredictable. You might have a budget set, but unexpected expenses can arise, such as emergency home repairs.
3) New employment doesn’t carry much weight initially. Banks are cautious and usually want to see at least a year of steady employment before offering a loan, even if it’s with a bank you have a history with.
4) Government regulations restrict bank flexibility. My own refinancing experience was extensively reviewed, showing how stringent the process can be due to government oversight.
5) Lower your risk of default. Without a stable job, you’re at higher risk of not meeting your mortgage obligations, which could lead to severe financial consequences.
6) Independent contractor income counts only after two years. Banks are very particular about consistent income history for approving loans.
Once you quit your job, you become invisible to banks. No matter your credit score or how much you have in assets, without a job, refinancing or getting a new mortgage is nearly impossible. So, take my advice: refinance your mortgage before you make any major career changes. It will secure your financial situation and save you from potential hardships that come from income instability.
