Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
I Lost It Today - Warning! Long post (er, rant)
Old 05-23-2009, 03:10 AM   #1
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,240
I Lost It Today - Warning! Long post (er, rant)

Debated about putting this in the "WHAT DID YOU DO TODAY" but realized it was more about being FI than anything else.


DW and I have been looking for a new place for over a year. Conservatively, we've looked at 100 properties if you count all the Sunday open houses and Thursday realtor open houses we've attended. We went so far as to put in a bid on a place late last year, but still no luck - until last week. Found the "perfect" place at the right price. Signed a contract with the seller and (though we have an "escape clause" for financing) we have every intention of purchasing this property.

Went to the bank today to get financing. Standard questions: How much do you make, what do you owe, what are your HOA fees and taxes on your current and proposed property, etc. Now, we had no illusions that we would qualify on the basis of our "official" income alone, as we only get a modest pension and DW's even more modest SS.

So we figured the bank would be impressed with our credit score of 8 freaking 20 and our invested assets (NOT including our paid off current residence) and no debt. Conservatively, we have 4 times the invested assets as the property costs. And, we offered to put 25% down in cash.

WELL! Because of the recent "unpleasantness", it seems income is MUCH more important than assets. In fact the banker asked why we didn't just liquidate some assets and buy with cash. We had actually considered that, but (long-story-longer) our assets are made up of (in order of highest to lowest dollar amount) 401(k)/Traditional IRAs, Roth IRAs, I-Bonds, CDs/cash.

Cashing in tax deferred accounts would be "taxable" events and would push us into ever higher tax brackets. We've actually been converting to Roths for a few years, but carefully managing the taxes while doing so. While we were quite prepared to use some IRA or 401(k) funds for our 25% down, we didn't want to use all tax deferred money for reasons mentioned above.

Next, we've worked long and hard (Beevis and Butthead - give us a "heh, heh, - heh, heh, heh" here, please) to convert to Roths, so, even though we could use our Roth money, tax free, we didn't want to disturb our Roths as we hope to make Roth IRAs the bulk of our retirement funds at some future date - assuming we can convert to them without paying too much in taxes.

We don't really want to cash in our I-bonds because they are difficult to come by (we used to be able to buy $60K/year and now only $10K.) These bonds have some unique advantages which we don't want to lose.

So, bottom line, while we COULD pay cash, we don't want to and are more than willing to take on a no-points mortgage at about 5% in order to preserve our retirement savings vehicles and manage taxes. Also, since we already own a property which is paid off and is worth nearly as much as the new property, our plan is to buy the new property, sell the old property and then pay off the mortgage - all in less than a year. So, a no-points mortgage at 5% is a pretty cheap way to accomplish our other retirement goals, we think.

BUT, the bank is STILL more interested in income (minus expenses) than assets. In fact, they count the HOA fees and taxes of the old place AS WELL AS those of the new place against us at the same time - unless we have a signed lease for a renter of the old place. I asked the banker, do you REALLY think that after we buy the new property we will just keep the old one for the next 30 years, let it sit empty and pay the HOA and taxes?? Don't you think we might sell it or perhaps rent it out? She could see our logic, but her algorithm doesn't allow for logical assumptions (just the facts, ma'am). So bottom line, after giving us SOME credit for our assets, we would need to put 40% to 50% down on the mortgage to qualify. While we could do that, for reasons mentioned above, we don't want to.

I told the banker I needed to step outside to cool down - actually, I told her I needed to step outside to warm up. This bank that couldn't afford to give us a mortgage had their AC cranked to about 64 degrees (I'm serious!) and were cooling a 2-story atrium, surrounded by all glass, in direct sunlight at 30 cents per KWH. The banker, poor thing, had to rub her hands together to warm them up enough to use her keyboard (I'm still serious!).

So, I'm outside, stewing about whether to agree to 40% to 50% down or whether to just forget the whole thing - or maybe try another bank. I head back inside and there - there on the glass bank door, there on the glass bank door with the 1 inch gap, letting the AC out, there (there on the Group W bench, eh, Arlo?) was a sign.

POOR CREDT? WE CAN QUALIFY YOU FOR A LOAN! ASK US HOW.

That's when I lost it. I went back in and told the poor banker what I thought of her bank and where they could put their money and how I blamed them for getting us into this financial mess in the first place and how I didn't vote for the clowns who wanted to let everyone own a home and how I sure didn't vote for the clowns who were now making the problem worse by not letting people who made bad decisions take the consequences and how, and how... and how... well. Uh, sorry, lady. Didn't mean to take it out on you. Uh, I'll give you call... soon. Bye.
__________________

__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-23-2009, 03:49 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by Koolau View Post
So, I'm outside, stewing about whether to agree to 40% to 50% down or whether to just forget the whole thing - or maybe try another bank. I head back inside and there - there on the glass bank door, there on the glass bank door with the 1 inch gap, letting the AC out, there (there on the Group W bench, eh, Arlo?) was a sign.

POOR CREDT? WE CAN QUALIFY YOU FOR A LOAN! ASK US HOW.

That's when I lost it. I went back in and told the poor banker what I thought of her bank and where they could put their money and how I blamed them for getting us into this financial mess in the first place and how I didn't vote for the clowns who wanted to let everyone own a home and how I sure didn't vote for the clowns who were now making the problem worse by not letting people who made bad decisions take the consequences and how, and how... and how... well. Uh, sorry, lady. Didn't mean to take it out on you. Uh, I'll give you call... soon. Bye.
Excellent and well deserved rant. I love the Group W bench reference. I know Nords had a similar experience in his refi, and from what I can tell other retirees are having a similar problem in the islands.
In some ways I don't completely blame the banks, we have very high real estate prices here, and we haven't had the house price correction that other high price places have had. If Dow drops to 5,000 and housing prices drop 40% here the banks could get screwed if you "only" have 25% down. The one beauty of being FIRED, is we aren't dependent on a good credit score, if my FICO dropped to 500 tomorrow, it would make very little difference (other than my auto insurance) on my life. So the temptation to walk away from a underwater mortgage maybe higher for FIRE folks. Perhaps banks have figured that out.

I'd certainly consider putting up another 5% or even 15% in order to get the best rate. If if saves you 1/4 or even 1/8 point on mortgage, it very possibly outweighs the benefits of keeping i-bonds, Roth intact etc.
__________________

__________________
clifp is offline   Reply With Quote
Old 05-23-2009, 04:01 AM   #3
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,240
Thanks, clifp, you make some good points. However, the issue with the down payment is not the rate. I get the "good" rate (no points makes it a bit higher, but that's ok since I'll pay it off early). The extra down payment is so that I don't owe too much for my "income". The rate won't go down if I pony up more down payment.

Aloha!
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 05-23-2009, 04:32 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
I suspect most banks will be highly focused on your cash flow and existing debt (ratio) in the more risk averse world of mortgages.

It sounds like their message is that you would be carrying too much debt and not able to sustain a personal economic shock if you were laid off and some of your income stopped... and people are still being laid off.

I think your retirement assets (like IRA and 401k) are protected in bankruptcy. They could wind up getting the house back with prices still falling.

I am not surprised. But I do understand your shock an dismay.
__________________
chinaco is offline   Reply With Quote
Old 05-23-2009, 05:14 AM   #5
Full time employment: Posting here.
 
Join Date: Dec 2006
Posts: 886
Nevermind
__________________

Trek is offline   Reply With Quote
Old 05-23-2009, 06:14 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by chinaco View Post
I suspect most banks will be highly focused on your cash flow and existing debt (ratio) in the more risk averse world of mortgages.

It sounds like their message is that you would be carrying too much debt and not able to sustain a personal economic shock if you were laid off and some of your income stopped... and people are still being laid off.

I think your retirement assets (like IRA and 401k) are protected in bankruptcy. They could wind up getting the house back with prices still falling.

I am not surprised. But I do understand your shock an dismay.
How does one get laid off when you are retired? Considering that his income consists of SS (wife) and small pension, I don't get why the bank would be worried having his income be cut.

Chicano, you may want to reread the post..
__________________
clifp is offline   Reply With Quote
Old 05-23-2009, 07:03 AM   #7
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,827
Koolau, what a bad day. That ad would have pushed my buttons, too, under the circumstances.

What are your plans now? I guess some possibilities are to let the property go, or try to position your assets so that you can pay cash, or ask elsewhere about a mortgage.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 05-23-2009, 07:21 AM   #8
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,074
Koolau, are there a couple of Credit Unions you might give a try? Maybe they'll have a more rational approach to your mortgage needs - and not make you freeze your butt off while making application.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 05-23-2009, 07:56 AM   #9
Recycles dryer sheets
Scrapr's Avatar
 
Join Date: May 2005
Location: Bend
Posts: 264
Why are you talking with a bank? Wouldn't a mortgage broker give you more options? They deal with many financing companies. Not just "take it or leave it" Even in the boom a bank with a branch was not competitive

But, I'm glad you unloaded on her
__________________
Scrapr is offline   Reply With Quote
Old 05-23-2009, 08:02 AM   #10
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 406
OP, I understand your frustrations. However, one rule of real estate, is sell your original residence before you buy another one. (unless you are Bill Gates),

You mentioned you have been looking for a year. You could have sold your orginal residence, and rented for a while. Use the interest from your sale to pay for the rent.

This would give you maximum leverage when you buy. Pay cash, fast closing.
__________________
wolf is offline   Reply With Quote
Old 05-23-2009, 08:23 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,261
Quote:
Originally Posted by Scrapr View Post
Why are you talking with a bank? Wouldn't a mortgage broker give you more options? They deal with many financing companies. Not just "take it or leave it" Even in the boom a bank with a branch was not competitive

But, I'm glad you unloaded on her
Shop around. A friend was in a sort of parallel situation. In his case, the "big lenders" had formulas that they rigidly stuck too, and he just didn't fit the profile, although he was clearly a better credit risk than people that would fit the profile.

He ended up going to a small, local bank (maybe some other kind of lender, but I think he said "bank") - and they were flexible enough to see that he fell between the cracks and they were happy to get his business.

Bureaucracy is frustrating, isn't it?


-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 05-23-2009, 08:26 AM   #12
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 75
Quote:
Originally Posted by wolf View Post
OP, I understand your frustrations. However, one rule of real estate, is sell your original residence before you buy another one. (unless you are Bill Gates),

You mentioned you have been looking for a year. You could have sold your orginal residence, and rented for a while. Use the interest from your sale to pay for the rent.

This would give you maximum leverage when you buy. Pay cash, fast closing.
Ohhhhh how the pendulum swings! We have really gone from one extreme to another. Now we have to be Bill Gates to buy a second home? The OP sounds like "gold standard" to me. This is the kind of people you should "want" to lend to. This is absolute nonsense!

The problem now is that the OP "may" miss out on getting a 5% mortgage loan if he first has to first sell his first home. Although with this kind of idiotic lending logic, I will place my bet on having low rates for a long time because if the economy is to move, grow, and get out of this mess we need to loan money(and LOTS of it!).
__________________
Nanita8140 is offline   Reply With Quote
Old 05-23-2009, 08:29 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,256
A couple of items.... both my mother and I bought a place in the last few months...

She is almost 90 and only gets small pensions and SS... with no debt on a crappy house... well, the mortgage broker said the same thing about income.. but we were able to use the interest and dividend income for her income... so they told us what she could 'afford' on a loan...

Well, after hearing all the fees etc.. my mom decided to pay cash....

Now, for me.... I still work, so that is not a problem... but I have a paid off house with a HELOC.... well, it is easy to draw down that HELOC for a down payment of the amount you 'need'.... since you are going to sell the house anyhow, it will be paid off when it is sold... so just a carrying cost of the HELOC... mine is at 3% right now... BTW, I also took some out to fix up the old place so it looks great... will probably help it get sold and for more money
__________________
Texas Proud is offline   Reply With Quote
Old 05-23-2009, 08:51 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by wolf View Post
OP, I understand your frustrations. However, one rule of real estate, is sell your original residence before you buy another one. (unless you are Bill Gates),
Didn't this rule come about to avoid getting stuck w/ paying 2 mortgages?
In OP's case, mortgage on current home paid off so OP doesn't have this exposure. OP has the other exposure......sell and then can't find suitable place and then has to pay rent for indeterminate period.
__________________
kaneohe is offline   Reply With Quote
Old 05-23-2009, 08:59 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Koolau,
Great, entertaining post. I'd be in much the same situation if I tried to get a big mortgage now--low official income and having to sell assets and pay the tax toll if I couldn't get the loan. Some thoughts:
1) I second the idea of shopping around.
2) Is there some way to use your assets as collateral (in addition to the collateral of the home itself) a portion of the loan, or to borrow money for the down payment? I'm not a mortgage expert, but it would seem to make sense that if you put up some of your CDs (maybe buy them at the same bank) for a loan of, say, 20% of the home's value, then the bank would be at very low risk.

Many years ago I bought a home and needed an 11 year mortgage. This was because, at that time, the military based your housing allowance on your mortgage payment amount (up to a cap). Since the house was cheap, a normal 30 year loan wouldn't have maxed out this allowance. At that time, shorter mortgages were unusual. I was willing to put 20% down, but nobody was equipped to do something nonstandard like this. I finally found a bank that would do it--a little rural bank in Illinois, two branches. I sat down with the loan guy/asst manager, he looked at our paperwork, I put down 20%, we shook hands, and the deal was done in less than an hour. I wonder if there are any banks left like that--where the guy in the branch has the discretion to make a good loan even if it doesn't fit the mold.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 05-23-2009, 09:15 AM   #16
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Just my own story.

We built our current abode 15 years ago (our 4th, in 40 years of marriage). At the time, I was employed (currently I'm working on my 3rd year of retirement).

When we discussed our "next" note/mortgate, the bank recognized that our home (at that time) was paid for, and that our investments (mostly reitrement) were many times the principle that would be due on our new note. Their comment was "why don't you just pay it with your retirement investments?". Answer - "No, thank you. Those assets are planned for something else ....

Anyway, our 30-year note was paid off in 5.5 years (along with a 50% down payment).

Today? I'm retired. My wife/me are competely debt free, and I doubt very much if I could get a note/mortgate/loan that I don't have any "stated income" to give as "collateral".

It's not what you have - it's what you say you can provide in the future (e.g. income) that counts. Other than revenue stream, you can be "financially independet" yet have no worth in today's financial rating system.

BTW, I purchased a car last year. Rather than finance, I just paid cash (which I learned later due to excessive withdrawls against my retirement accout, cost me a bit in taxes - oh well, learn for next time).
__________________
rescueme is offline   Reply With Quote
Old 05-23-2009, 09:35 AM   #17
Recycles dryer sheets
 
Join Date: Mar 2009
Posts: 357
Koolau, I bet if you shop around you'll be able to get a rate for under 5%. I just refinanced and realized that most local banks aren't as eager to get your business and don't offer competitive rates.

Have you ever used LendingTree.com? Or if you're not comfortable submitting your info online you could call some banks directly.

Or if you don't want to deal with the hassle I'd call a mortgage broker.

My sister refinanced at 4.35% and I'm planning to refinance again -- hopefully around 4.5% with no points. The rates have been super low since December and with a 820 credit score I bet you'll be able to get a similar rate.
__________________
bank5 is offline   Reply With Quote
Old 05-23-2009, 09:47 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,526
Get a no closing cost mortgage or HELOC on your current place (basically a cash out refinance). Take proceeds, and make a 50% downpayment on your new place. Penfed for one offers 5% home equity loans with basically zero closing costs with terms up to 20 yrs. If you pay off w/in 2 years, you repay closing costs which were $124 in my case. If you want some cash out of the new place, you could always refi once you are in it if rates are low, or get a HELOC or home equity loan on it.
__________________
FUEGO is offline   Reply With Quote
Old 05-23-2009, 10:02 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Feb 2006
Posts: 1,183
There is one other option that I can think of. If possible pick up a McJob for a month or two. That will give them an income stream to justify the dual taxes and HOA fees. It only takes a few hours a week to add a few hundred to the cash flow and you can blow it off the day of closing. But, I agree they continue to be foolish in lending practices.
__________________
crazy connie is offline   Reply With Quote
Old 05-23-2009, 11:32 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Oct 2008
Location: Naples
Posts: 2,161
Koolau, that was a great post. The difference between you and me is that you stuck around there too long. I would have ripped her up and stormed out of there. You could have bought and sold that banker many times over. I would take two or three days, gone to different banks/lending institutions and instead of asking for a loan I would have put my facts on one page of paper and said "here's what I want to do, here's what I got, here's is how I will pay for it, here's what I want from you". But, in hindsight, who'd have thunk it? It used to be that with your stats, you'd be in the drivers seat. Guess these are different days.

Again, thanks for your great post and all the posts that followed. Made for very interesting reading.
__________________

__________________
JOHNNIE36 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
LONG rant.... Keyboard Ninja Other topics 14 09-19-2008 07:59 AM
Middle East political rant (warning) Brat Other topics 0 02-16-2007 02:48 PM
Saddam and Friends hanging - Am I crazy? Warning a rant follows! dex Other topics 5 01-15-2007 07:14 PM

 

 
All times are GMT -6. The time now is 04:35 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.