Refinancing US Mortgage, working for non-US company in UK

I own a house in the States with a friend of mine.  We are trying to refi the house using my income earned here in the UK (I am living in the UK).  I work for a Germany company who has a plant here in London.  I gathered all my documents, my house partner submitted those along with his (he still lives in the house and works in the US).

The US bank says that the underwriter declined the application because;

It has to do with how you get paid.  Basically foreign income is shown on IRS tax returns as Foreign Income/Tax Credit, and if you do not pay income taxes in the US for income earned, then we cannot use it for qualifying.  This is the email from our underwriter who called the investor to verify and this what she emailed:

"As I thought, we really cannot use foreign income because it is shown as foreign income credit.  If borrower doesn't pay US taxes on the income, we cannot include it for qualifying."

The US bank also added,

Unfortunately this is a Fannie Mae/Freddie Mac/FHA requirement, so unlikely you will be able to get around if needing to utilize their programs.  We were processing the refinance under the Home Affordable Refinance Program through Freddie Mac (the entity that owns your current loan) so that the loan to value would not be an issue.

She also stated that if I worked for a US firm here in the UK that this wouldn't be an issue.  The parent company does business in the US, has a 2 large plants there, but I guess this doesn't help.

Any one else have any advice with this type of issue, is it truly a dead end or are there other options?

Hi there,

I'd say that with lending practices being tightened after the debacle of the last 7-10 years of throwing money around and cheap easy credit, you'll most likely not be able to do what you are proposing easily.

That said, I'd suggest you speak to a specialist Tax lawyer conversant with US and UK tax, and find out exactly where you sit with your tax situation. Once you have that, perhaps you can speak directly with any mortgage advisors and companies to see if they'll consider taking in the US income that you have left after living expenses etc.

The best 'chance' of that is usually if you are in the higher tax band in your job here in the UK, as it means you'll (most likely) have more disposable income left over each month.

The above is bit of a long shot though, the other way around it would be if you could show a large deposit to the lending company to minimise how much they'd lend you i.e the risk.

Are you re-financing for just a better rate on the mortgage or looking to release some equity in the property?!

Cheers, DtM! West London & Slough UK!

DTM, we are trying to get a better rate.  We bought the house (50%/50%)  in early 2006 so the rate was about 6.2%. now it would be down in the 4's.  With the cut in interest, we where hoping to be able to have a rental income cover the entire mortgage.

Seems like one of those silly rules, if its not taxable income, or appear on this 1040 line, then they can't use it to refi the house.  I have enough income, good credit, educated, etc.  I realize its a government backed program, but I would think their main worry would be if we can repay the loan, not if my income is taxed.  I am American, I do still pay local taxes in the States, I can vote, what's the big deal about it being taxed, its income.