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Getting a new (house) loan when retired?
Old 08-09-2013, 11:59 AM   #1
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Getting a new (house) loan when retired?

Hi there,

I am not (yet!) retired, but actively planning to. We fully paid the mortgage on our house (), and should have (hopefully) decent money for retirement through various types of securities and related (safe!) withdrawals. My wife will keep working longer though.

In the first decade, we'll still have a bit of regular income through my wife's salary (which is very small, but she loves her job, so no complaint) and some occasional part-time jobs for me. But this will all be pretty small, way smaller than our current taxable income!

My question is... If we were to decide to move to a new house... Could we get a decent loan while living on very small wages and much more significant revenue from our securities?

Sure, we'll be able to pay cash (cf. previous house), but I'd rather take a new 10-years low-rate loan (if still available by then) and free + invest some additional capital...

What would a typical lender think about early retirees like us?
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Old 08-09-2013, 01:17 PM   #2
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There have been a few threads on this. They do look at dividend income (using tax returns), but not necessarily capital gains or total assets. If you are income oriented in your portfolio you may well do OK.
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Old 08-09-2013, 01:43 PM   #3
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I have checked into this lately with two credit unions. One will look at assets only. They want to see at least three years worth of mortgage + living expenses in liquid assets you can draw down for "income" at of the time of the loan. We would have to put 20% down for this loan.

The other credit union said we had to show assets plus 2 months of "income", transfers from the retirement accounts into our checking, plus show that we can do that for at least 3 years. This loan would also require 20% down. With the asset transfer "income" we would still have to meet the normal qualifying ratios.

The first credit union said if we buy the second house before we sell our current house, then they will count rental income (75% of similar home rentals) as income for our ratios. Buying a rental would require 25% down. For this loan we also had to meet the normal qualifying ratios. The rental scenario had a higher loan rate, but gave us the highest amount to buy the new house, plus we figured always refinance at a lower rate after we sold the first house.
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Old 08-09-2013, 02:01 PM   #4
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Quote:
Originally Posted by Animorph View Post
There have been a few threads on this. They do look at dividend income (using tax returns), but not necessarily capital gains or total assets. If you are income oriented in your portfolio you may well do OK.
Yes, this is exactly where I have doubts. I completely reorganized our assets to move to passive investing over the past few years, took advantage of lingering capital losses to avoid taxes, and now my capital cost basis is high (hence my taxable income post retirement should be real low, nice!).

So if the lender doesn't look at total assets, I would probably look quite bad (aside from my credit score, which is fine)! This would make very little sense, but those guys have rules...
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Old 08-09-2013, 02:02 PM   #5
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Originally Posted by daylatedollarshort View Post
I have checked into this lately with two credit unions. One will look at assets only. They want to see at least three years worth of mortgage + living expenses in liquid assets you can draw down for "income" at of the time of the loan. We would have to put 20% down for this loan.
That would be perfectly fine. Cool, at least some lenders would be ER-friendly then...
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Old 08-09-2013, 02:54 PM   #6
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That would be perfectly fine. Cool, at least some lenders would be ER-friendly then...
They seem to be geared toward income, not assets. This is rather odd from a logic standpoint, because you can lose a six figure job overnight, but it is going to take a lot more intentional effort to dissipate 30 years of savings, but the reality is most mortgage lenders are income based.

As long as we can transfer assets from a retirement or taxable savings type account into a checking account, either theoretically or for 2 months, and have enough assets to do this for 3 years (!) on a thirty year loan, both of the credit unions we use said we were good to go.
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Old 08-09-2013, 04:02 PM   #7
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My wife and I ran into this situation 4 years ago when we tried to buy a house just after I retired. The big banks could not make it work. I finally went to my local small town bank and they factored in our assets. No problem qualifying. That and a credit score that he said was the highest he had ever seen!
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Old 08-09-2013, 05:33 PM   #8
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We received a house loan last year based upon a combination of (1) DH's SS, (2) disbursements from DH's IRA, and (3) my part-time income.

For the disbursements from the IRA we had to provide a copy of the Vanguard statement showing that the IRA had enough money in it to make the payments for I think 3 years, the statements showing that systematic withdrawals were being made (basically we had set up a regular monthly withdrawal), and (3) a short paragraph of explanation. We had no difficulty getting approval. The mortgage broker said that in the past Fannie Mae had required that the systematic withdrawals had been on going for some period of time but that he had recently had one approved where the withdrawals were just starting. The key was that the withdrawals were systematic automatic withdrawals (note that there was no requirement that he continue making the withdrawals in the future).

Another option for some who have just assets and aren't doing systematic withdrawals is to look into an asset depletion mortgage. These are based upon the amount of assets versus life expectancy.
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