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Lending standards not favoring recent retirees, but now a possible solution
Old 06-13-2019, 07:28 AM   #1
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Lending standards not favoring recent retirees, but now a possible solution

Want to refinance my mortgage. And maybe put on a line of credit for emergencies.

A year ago, I had one SS payment, rental income (no debt on property) and periodic withdrawals from IRAs, and HSAs. Was told that for rental they used tax return number which includes depreciation and expensing of capital items. A net of zero. I was told that since my IRA withdrawals were not regular for a YEAR, they didn't count. So, even though my credit score was good, I had no income, except SS, and therefore could not borrow.

Yesterday, I found the Fannie Mae standards for what qualifies as income and things must have changed.

First, I changed. The rental was sold and I took back a note receivable. As long as the note is more than one year old and it has at least 3 years to go, the payment I receive each month is income.

Second, retirement assets now qualify! They look at your IRA. They take off 10% because they assume you will need 10% for closing costs. Since you are in stocks and bonds, they only use 70% due to volatility. Then they divide the balance by the life of the loan. 360 months or whatever the term is. That becomes the amount of income you can use to qualify.

If the distribution from your IRA has started, it is qualifies as a pension. The standards do not specify how long it has to be in place. My bank says they use 2 months of receipts. I just set up and received regular payment number one today. One more and I qualify.

Wanted to know if anyone had similar experience as I am somewhat suspect of how the front line customer service rep says they interpret the standards.

If the changes are correct, I am such a great credit risk as compared to the guy a year ago.
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Old 06-13-2019, 07:49 AM   #2
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I went thru this a few months ago. My tax returns for the last five years only contain dividends and capital gain distributions. That is the only "income" they would consider and it didn't qualify me for much of a mortgage. They ignored my investment assets (referred to them as "Savings") and two years of checking account statements showing consistent, regular direct deposits totaling over $100K annually.

They ignored it all. Said the only thing they could consider was the "income" shown on my tax returns. This despite my putting down 50% and a credit score of 840.

I certainly hope the standards have changed. I was considering withdrawing a substantial amount from my tIRA for a couple of years so that it would show up as income on my tax returns even though I'm only going to turn around and deposit those withdrawals into a Roth.
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Old 06-13-2019, 07:54 AM   #3
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Originally Posted by Looking4Ward View Post
I went thru this a few months ago. My tax returns for the last five years only contain dividends and capital gain distributions. That is the only "income" they would consider and it didn't qualify me for much of a mortgage. They ignored my investment assets (referred to them as "Savings") and two years of checking account statements showing consistent, regular direct deposits totaling over $100K annually.

They ignored it all. Said the only thing they could consider was the "income" shown on my tax returns. This despite my putting down 50% and a credit score of 840.

I certainly hope the standards have changed. I was considering withdrawing a substantial amount from my tIRA for a couple of years so that it would show up as income on my tax returns even though I'm only going to turn around and deposit those withdrawals into a Roth.
I had a client come in and ask me to set up a monthly withdrawal from his IRA to qualify for a mortgage. He asked me to cancel it after he set it up as he doesn't need the money. What an absurd requirement!
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Old 06-13-2019, 08:35 AM   #4
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Reply hazy, ask again

I don't have experience so much as I have fear that I'll be frozen out of the lending industry once my W-2 disappears.

I come from the school that says debt is a tool, not intrinsically either good or bad. For example, we maintain a HELOC on our existing house as a ready source of emergency liquidity, obviating a stagnant pile of low-earning cash.

Will I be able to do the same once we FIRE and relocate to our retirement castle? I guess we'll have to wait and see.
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Old 06-13-2019, 11:06 AM   #5
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Originally Posted by Z3Dreamer View Post

Second, retirement assets now qualify! They look at your IRA. They take off 10% because they assume you will need 10% for closing costs. Since you are in stocks and bonds, they only use 70% due to volatility. Then they divide the balance by the life of the loan. 360 months or whatever the term is. That becomes the amount of income you can use to qualify.

Such "asset depletion" loans have been discussed in other threads. Seems like a very conservative withdrawal rate, below 3%. Bank wants to play it very safe, just like many folks here


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Originally Posted by Looking4Ward View Post
I went thru this a few months ago. My tax returns for the last five years only contain dividends and capital gain distributions. That is the only "income" they would consider and it didn't qualify me for much of a mortgage. They ignored my investment assets (referred to them as "Savings") and two years of checking account statements showing consistent, regular direct deposits totaling over $100K annually.

They ignored it all. Said the only thing they could consider was the "income" shown on my tax returns. This despite my putting down 50% and a credit score of 840.

I doubt I would be able to qualify for my current mortage under such terms, at least until SS comes online. We moved into my current house before stumbling suddenly into retirement. If we planned better, I would have been tempted to buy a second house in a warmer and sunnier retirement spot, then FIRE several months later. Right now we're somewhat stuck here due to the difficulties of getting a new mortgage and an unwillingness to blow so much after tax savings, which are currently used to manage our tax liablity.


Still, I can't complain. It's pretty nice here, especially since I don't have to go to w*rk!
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Old 06-13-2019, 11:36 AM   #6
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I recall looking into these “asset depletion loans” several years ago so I don’t think that they’re new. I don’t think all lenders are aware of them, or are interested in writing them.
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Old 06-13-2019, 12:10 PM   #7
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You can always try another mortgage originator. Not all are created equal. Needless to say, the industry just sucks.

If someone can pay 50% down on a home and document they have other liquid assets to pay cash, there's no way any lending institution will get hurt. And not all mortgages are sold to Freddie Mac--many banks and credit unions keep them in house.

Those with an upcoming retirement would do best to obtain their mortgage prior to the retirement--while they have documentable income.
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Old 06-13-2019, 12:13 PM   #8
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Can the banks (lenders) see that income on my tax return is from tIRA WD's or is it just income?
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Old 06-13-2019, 09:01 PM   #9
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Can the banks (lenders) see that income on my tax return is from tIRA WD's or is it just income?
If they require a copy of your tax return, they will see the tIRA income on a separate line from W2 income.
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Old 06-13-2019, 10:22 PM   #10
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Originally Posted by Bamaman View Post
You can always try another mortgage originator. Not all are created equal. Needless to say, the industry just sucks.

If someone can pay 50% down on a home and document they have other liquid assets to pay cash, there's no way any lending institution will get hurt. And not all mortgages are sold to Freddie Mac--many banks and credit unions keep them in house.

Those with an upcoming retirement would do best to obtain their mortgage prior to the retirement--while they have documentable income.
For some reason they’re convinced that you’ll suddenly cash out all your funds and leave the country!

Oh wait.....they’d still have the house at half price.
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Old 06-14-2019, 10:03 AM   #11
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They take off 10% because they assume you will need 10% for closing costs.

10% of the home price, mortgage amount or assets?
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Old 06-14-2019, 01:24 PM   #12
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They take off 10% because they assume you will need 10% for closing costs.

10% of the home price, mortgage amount or assets?
Here is the link to Fannie Mae regs:
https://www.fanniemae.com/content/gu....20of.20Income

Page way down to "Employment-Related Assets as Qualifying Income". Others may be interested in "Retirement, Government Annuity, and Pension Income" which talks about streams of income already in place. The ERAAQI above is for assets where nothing has started to flow.

My lender was going to deduct 10% of the asset in all cases. The regs differ.

I forgot to add that if you are going to go through this with a lender and try to explain that you really are a good risk, you should prepare yourself with some sort of relaxing medication in pill or liquid form.
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