Credit in ER

[Z3Dreamer]

There are many reasons one would want to borrow in ER. Buying that beach condo, refinancing existing debt, buying that new Z8,etc. Talked with a bank about borrowing. Here, are some comments by banker:

• Dear Mr. Z3, we don't count your SS as we need a long history of deposits. Your qualification letter listing the start date is not sufficient.
• Even though you have retirement assets, we use the last year or two of deposits as your income. Since you have no deposits until Mrs. Z3 recently retired, we can't count that.
• You are between tenants on your rental so we can't count that. When you get that tenant, we will use 75% of the rent income.
• We only count the required amount ($600) on the note payment you are receiving, not the actual amount. Actual amount includes additional principal of $1,400. We might not even count the income as it is from a related party.
• Yes, Mr. Z3, your perfect credit score is amazing but you have no income to qualify you on a loan.

Your thoughts?

 

[SonofCohoes]

What I get from this. Get any loans before you retire.

Can't you go old school and get some sort of passbook loan if they're still available?

I had a customer who had money w Morgan Stanley and he borrowed against his assets through them to get the mortgage on his house.

 

[razztazz]

There are many reasons one would want to borrow in ER. Buying that beach condo, refinancing existing debt, buying that new Z8,etc. Talked with a bank about borrowing. Here, are some comments by banker:

• Dear Mr. Z3, we don't count your SS as we need a long history of deposits. Your qualification letter listing the start date is not sufficient.
• Even though you have retirement assets, we use the last year or two of deposits as your income. Since you have no deposits until Mrs. Z3 recently retired, we can't count that.
• You are between tenants on your rental so we can't count that. When you get that tenant, we will use 75% of the rent income.
• We only count the required amount ($600) on the note payment you are receiving, not the actual amount. Actual amount includes additional principal of $1,400. We might not even count the income as it is from a related party.
• Yes, Mr. Z3, your perfect credit score is amazing but you have no income to qualify you on a loan.

Your thoughts?

For a bucking fank they don't seem to understand anything about money. They sound like "Granny's Bank of Beverly Hills" from the Beverly Hillbillies. Or like a Mafia defendant in court mindlessly reciting "I wish to invoke my 5th amendment rights on da grounds I might incriminate myself..."
to every question

 

[MRG]

We were able to get a home equity loan on our house. We couldn't qualify for the entire amount due to limited income but we did get 160k from BofA.

There are some lenders, I'm told, that will look at more of your assets than conventional loans. I'm hoping another poster will know more.

 

[Another Reader]

If you want to buy a car with a loan, go through the dealer. You will get equal or better terms, especially if you tell them you are looking at the credit union rate which is X.XX percent, and they will ask you for very little in the way of a loan application. They pull your credit and shop the loan on line to their banks. Somehow you are a much better credit risk on the showroom floor than you are at the bank branch.

A little retirement income history will go a long way in getting a mortgage. The underlying standards are those of Fannie/Freddie, and each bank puts their underwriting overlay on top of those. There is significant variation among lenders, and a good mortgage broker will know where to go to get you the loan.

 

[rodi]

We had no problem at all getting a HELOC after I retired. DH was already retired. Our income was DH's SS, and some rental income... the rest we were drawing from savings. We showed how much we planned to pull from savings each year.

I was surprised how easy it was. Our high credit scores and zero debt (no mortgage) were probably factors.

We haven't used the HELOC - but it's there if we need it.

 

[Aerides]

This is one reason we opened a HELOC and upped our credit card limits prior to ER... But I agree try another bank, this one sounds silly.

 

[rodi]

In thinking on this more I have a few questions...

- Do you have a lot of debt already? (Car loans, mortgages, etc.) That could definitely be a factor in looking at your income... you may not qualify on the existing (low) income.

- What are your credit scores? Again - if not great - that's another reason they'd be looking for more income to reassure that you're a good credit risk.

- Or - the bank could just be stupid and arbitrary... in which case check a different bank.

 

[Bir48die]

I am lucky that I've had two open lines of credit with my credit union. Neither has been used for over five years. I understand that they will want the house as collateral if I want to borrow anything substantial but I keep a decent balance in my savings as that's what I draw off of for expenses. That being said, I have not gone to the well since paying them off so all of that could change.

 

[Hamlet]

Banks are incredibly mindless about this stuff. When I was getting my first home loan, there was a $5000 deposit in my bank account because my mother had given each of the grandchildren some money from my grandfather's estate. The bank wanted me to get a note stating that it was a gift and not a loan. It was not a significant amount of money to my finances. I had about as much in assets as I was asking to borrow, and my income would have qualified me for a mortgage twice as big as what I was asking for. I finally asked them to pretend that I just didn't have that money and decide if they still wanted to approve the loan.

 

[GalaxyBoy]

According to Kiplinger's web site, assets can count towards getting a mortgage. OP didn't mention a mortgage so I assume they were thinking of some other type of loan.

The formula to use a nest egg works like this: A lender takes 70% of "eligible" assets. The lender may then subtract closing costs and other loan expenses. However, if you pay closing costs from a taxable or non-retirement account, the closing costs will not be subtracted from the eligible assets. Regardless of the loan term, the balance is then split by 360 months, and the monthly installment is added to your monthly income to help you qualify for a mortgage.

"Eligible" assets are retirement accounts, and I believe taxable accounts don't count.

 

[MissMolly]

You realize that what seems as arbitrary and ridiculous rules to us, the banks don't have a lot of choice. The rules are set by Fannie/Freddie/Ginnie etc. If the banks want to sell their loans to one of these agencies, they have to follow the underwriting rules set forth by the agency. Believe, the loan officers don't like it any better than we do.

 

[euro]

You realize that what seems as arbitrary and ridiculous rules to us, the banks don't have a lot of choice. The rules are set by Fannie/Freddie/Ginnie etc. If the banks want to sell their loans to one of these agencies, they have to follow the underwriting rules set forth by the agency. Believe, the loan officers don't like it any better than we do.

True, but not all banks want to sell their loans. Looks for smaller regional banks, credit unions, etc.

 

[Gotadimple]

Find a different bank. If you have a good credit score and can show a portfolio of investments with a withdrawal history, that should help demonstrate you have sources of funds.

I retired in July 2008, began drawing on my savings and was depositing money with my credit union, and refinanced a home loan with them in January 2009. The home loan was new to them. There wasn't an issue - we specifically discussed how much I pulled from my portfolio and how much I spent from it each month.

 

[pb4uski]

You realize that what seems as arbitrary and ridiculous rules to us, the banks don't have a lot of choice. The rules are set by Fannie/Freddie/Ginnie etc. If the banks want to sell their loans to one of these agencies, they have to follow the underwriting rules set forth by the agency. Believe, the loan officers don't like it any better than we do.

True, but the rules are totally stupid and work both ways. I refinanced with csh out just before I retired. I had stopped working and had an agreed end date with my employer but was "on vacation" for about 5 weeks. I provided employment information when I applied. They close the loan a couple weeks before I went off of payroll. They did an employement verification just before closing. They never asked me if I expected to continue to be employed nor did they ask my employer if I had sumbitted my notice and I didn't feel compelled to tell them.

Since I retired I have applied for and received a different credit card and also done a car loan.... in each case they asked me what my "income" was and I told them the amount from my most recently filed tax return and in each case I got the credit card/loan. What they don't know because they never asked is that much of that income was Roth conversions that IMO is just moving money from one pocket to another.

 

[hesperus]

We may be one of the fortunate exceptions here, but we don't pay much attention to credit scores now, and relieved we don't have to play that game anymore. Any major purchases - new auto, vacation home, travel, etc, are all prepared for and completed with cash. We have a couple of credit cards for their perks, but balances are paid off monthly, so I assume our scores are quite good.

 

[karen1972]

My credit union would use a pension or SS that you are receiving (had to show 2 months of deposits) and would count dividends if they were consistently deposited over the course of a year... ie for them it was about a "pattern" of income that couldn't otherwise 100% verify. Without a pattern, they would not accept it. So it may be just that you haven't had enough history with this specific bank.

Of course its all just a game, we used my boyfriends income to show proof of income even though it was a contract job, they just looked at his W2s and said oh the last 2 years he made about X and the current job shows a similar X so even though he often goes for long times without a job, he clearly has the ability to find work at some point and he is employed at this specific moment... so sure here's some money.

 

[mamadogmamacat]

We may be one of the fortunate exceptions here, but we don't pay much attention to credit scores now, and relieved we don't have to play that game anymore. Any major purchases - new auto, vacation home, travel, etc, are all prepared for and completed with cash. We have a couple of credit cards for their perks, but balances are paid off monthly, so I assume our scores are quite good.

+1000

 

[GravitySucks]

Find a local bank or credit union.
Since retired I have gotten a car loan at the great credit score rate, and a new credit card without any problem. Only income listed was 401k withdrawals.

 

[aja8888]

I got a $20,000 loan from my credit union for a new car just by filling out an online application. I was just trying to see if I qualified being retired and in a few days, a $20,000 check appeared in my mail.

I had funds in my account more than the loan but just wanted the 1.9% financing. I don't deal with banks and have used the credit union (I belong to two) exclusively.

 

[jazz4cash]

Find a local bank or credit union.
Since retired I have gotten a car loan at the great credit score rate, and a new credit card without any problem. Only income listed was 401k withdrawals.

+1
If I need a loan, I think the bank is the last place to go.
OP's post is yet another reason why I think credit scores are a scam. I think I might go to my bank and see what they tell me. I know my credit union is pretty flexible.

If they say I need deposits, its easy to convert retirement account assets into a stream of deposits.

For mortgage loans there is a Freddie Mac formula that uses 70% of your retirement account assets-closing costs/360 as monthly income. (So if you had 1M and your closing costs were 10k, you could use 1900/mo as income)

 

[Bamaman]

I recently moved my checking to my credit union. I had some unauthorized withdrawals on Wells Fargo ATM card by a child. I had always carried overdraft line of credit at Wells as I'm often jockeying money around.

When I requested the same credit line at the credit union, they had to pull two credit bureau reports and wanted printed proof of pension and social security income. What's so dumb is that I've got $200k parked temporarily in the credit union that documents my character and my capacity to cover a stinking $5k credit line.

Bankers and loan officers are such a pain to deal with.

 

[Senator]

They should be using your tax forms, not a bank deposit. Your rental income should be based on the past two years. Vacancies are a normal part of business.

I just qualified for a $375K loan, based solely on my tax forms.

 

[flyingaway]

I would not retire early if I need a mortgage for any reason.

 

[athena53]

DH and I encountered this one year after I retired. We had excellent credit, no debt other than the mortgage and enough invested assets to buy the house we wanted 10 times over. We wanted to borrow $150K. They would loan us only $100K. I had prepared a nice little spreadsheet showing the flow of money from the brokerage account to the checking account plus the other accounts making up our net worth (which had gone up by $100K since my retirement) and I swear all they looked at was DH's SS (he'd been retired for years) and my $900/month pension. The mortgage they offered was 15 years, 3% fixed, so we took it.


No problems at all getting credit cards. No plans whatsoever to take out a car loan. My next move is likely to be a retirement community and I hope that won't be for awhile. Will worry about the mortgage/no mortgage decision then.