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Mortgage without income
Old 06-14-2019, 07:08 AM   #1
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Mortgage without income

My wife and I are "early retired" - me soon to be 55 and she is 52. We have no debt, including no mortgage on our home worth perhaps 250k. We have about 1.45m with about 2/3's in IRA funds, and the rest in mutual funds and about 125k in cash. No income other than interest on the cash and some dividends on the non IRA funds.



We are looking to purchase and move into a different home of similar (hopefully less!) value. Taking our time to find the right place - we could find it in a few days or a year from now. We have no plans/need for a long term mortgage, but it sure would be nice to make an offer on the new home without having a contingency on the sale of our current home(which is in nice shape and ready to sell). We hope to pay off the home equity loan during the closing of the sale of our current home.



The product that seems to fit our needs is a home equity line of credit. That could sit in our back pocket ready to use when we need it. However, our banks are (mostly) saying they can not do such a loan (at least to purchase a second home) without a significant income. It makes no sense for us to pull money out of the market to show income (or to secure a loan) - the cash we have is all we need for the next 2-3 years. (and that income would also kill our healthcare plan).


The first loan officer we spoke with mentioned this could be done as long as we didn't mention purchasing a home when setting up the home equity line of credit. It was an odd "nudge-nudge wink-wink" sort of conversation. We talked with 2 other loan officers (including one at a different branch of the first bank) and they both said no income - no loan.


It all seems a bit odd to me - I always assumed a home equity type of loan used the home itself as collateral and the bank would loan whatever portion of the current home value they felt was a safe risk?


Any thoughts or ideas?


thanks,


Jim
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Old 06-14-2019, 07:26 AM   #2
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What we did was show the amount of funds we were pulling from our retirement accounts. We also provided last two years income taxes which also showed income (pre-retirement mostly). Are you planning on selling your current home? If so, why the HELOC? Would seem easier to either sell first and pay cash for new home or get a "no docs" loan for second place based on large down payment.

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Old 06-14-2019, 08:55 AM   #3
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What is a “no docs” loan?

There is “asset depletion” loans, which base loans not on income, but assets.

BTW, are AD loan rates the same as normal income loans?
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Old 06-14-2019, 03:51 PM   #4
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If you have enough in non-IRA assets you could look at a Pledged Asset Line which is a loan against your assets. I know Schwab offers them and I believe some other brokerages do as well.

The interest rates would be a little higher than a mortgage but there aren't the same origination fees so it might be a wash if you are only financing for a year. And I don't believe they would care about income at all since the loan is based on assets.
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Old 06-14-2019, 04:16 PM   #5
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If you have $125K in cash, why don't you use part of that for a downpayment (20% down), then take out a 30-year loan with no pre-payment penalty? Then, when you sell your place, just pay off the new loan?
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Old 06-14-2019, 05:00 PM   #6
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When I retired back in 2013 we downsized shortly thereafter and took out a HELOC with Wells Fargo that was based on my assets and IRA distributions. It might have helped that a large portion of my IRA investments were housed at Wells Fargo at that time. The HELOC got very little use as we sold our house a week after purchasing the new home, but that bridge did provide some convenience.
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Old 06-14-2019, 05:06 PM   #7
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When we moved last summer, it was in our best interests to carry a mortgage instead of paying all cash (because of the clergy housing allowance), but almost half of our income is from two of my IRAs (using 72t). What I had to do is give them a couple months of statements showing our IRA balance and the regular withdrawals on those statements, so the CU could count it as income.

Different lenders will all have different standards but some sort of combination of retirement assets and withdrawals small enough to be supported by the balance of the accounts is enough for most lenders. I don't know if it's a rule or a law, but lenders seem to consider brokerage/retirement assets for 70% of their current market value, unlike 100% for things like savings accounts, if qualifying on the basis of assets rather than income. So if you were qualifying for an asset-backed mortgage, if you had $1M in brokerage and retirement assets the lender would consider it to be $700K for qualifying purposes.

The other thing is that laws regarding lending for HELOCs varies a lot state by state.
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Old 06-14-2019, 08:04 PM   #8
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You can certainly get a bridge loan from a hard money lender, but the fees are very high as is the interest rate.
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Old 06-15-2019, 04:42 AM   #9
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Here is a comprehensive article about it. Imho this is doable but u need to find a good loan officer who knows how to do it and will take the time. https://blog.massmutual.com/post/how...ing-retirement
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Old 06-15-2019, 08:12 AM   #10
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I understand their concern about the HELOC as normally you aren't taking on "more debt" when you are using it for just remodeling your house, thus why they are not ok with you using it to buy a second house... that being said, all money is fluid so you are using that money to retire early, take a vacation, etc and using your retirement money to buy a house.. done

If you read the article, you will see that the rules for Freddie/Fannie on traditional loans don't work for those under the age of 59 1/2 that have no stable income sources... they discount your assets so much they are basically worthless.

You can find private lenders to borrow you money that don't use Freddie/Fannie, they typically want a bigger down payment and charge a higher interest rate since they are not lending bank money but rather someones private money; however if you only need the money really short term I doubt you want to incur the origination fees, etc.

Else you have to look at alternative products depending on how much you need to borrow and for how long and there was already advice given by others on those options.
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Old 06-15-2019, 08:22 AM   #11
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We did an asset depletion mortgage this year but the problem for you is your age. Because you are under 59 1/2 it's much harder and probably more costly to do. Maybe you could consider selling some mutual funds although that might entail paying capital gains.
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Old 06-15-2019, 09:30 AM   #12
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We did an asset depletion mortgage this year but the problem for you is your age. Because you are under 59 1/2 it's much harder and probably more costly to do.
Do they use the same rates as conventional mortgages?
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Old 06-15-2019, 09:58 AM   #13
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We did an asset depletion mortgage this year but the problem for you is your age. Because you are under 59 1/2 it's much harder and probably more costly to do. Maybe you could consider selling some mutual funds although that might entail paying capital gains.
It's not hard to use Rule 72t, though it's possible (I don't know) that some lenders may use different standards. I was 52 when we took out our mortgage and it was never an issue -- we just had to furnish statements that showed enough assets to make the payments for the length of the loan (10 years in our case).
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Old 06-15-2019, 02:15 PM   #14
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If you read the article, you will see that the rules for Freddie/Fannie on traditional loans don't work for those under the age of 59 1/2 that have no stable income sources... they discount your assets so much they are basically worthless.

You can find private lenders to borrow you money that don't use Freddie/Fannie, they typically want a bigger down payment and charge a higher interest rate since they are not lending bank money but rather someones private money; however if you only need the money really short term I doubt you want to incur the origination fees, etc.



Quote:
Originally Posted by Ian S View Post
We did an asset depletion mortgage this year but the problem for you is your age. Because you are under 59 1/2 it's much harder and probably more costly to do. Maybe you could consider selling some mutual funds although that might entail paying capital gains.

Thanks, good to know. Makes my dreams of moving to somewhere sunny even more remote, but probably all the better. All this mortgage w/o income seems like too much w*rk, missed the boat by more than a decade! Anyway, I don't think we could stomach another move, what a PITA. Still dreaming and actually planning for more snowbirding though.
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Old 06-15-2019, 04:04 PM   #15
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Do they use the same rates as conventional mortgages?
My funds were in IRAs and they had me set up a monthly distribution. Showed two statements with the ira withdrawals and it became income which qualified us for a conventional loan with standard interest rates. Once we got the loan, then we stopped the monthly distribution.

We opted for a higher interest rate combined with the lender paying a chunk of our closing costs. Dont care about interest rate so much since we will use the proceeds from our old home to pay down new mortgage and then have the rest paid off in a few years at most.
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Old 06-15-2019, 04:12 PM   #16
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Thanks, good to know. Makes my dreams of moving to somewhere sunny even more remote, but probably all the better. All this mortgage w/o income seems like too much w*rk, missed the boat by more than a decade! Anyway, I don't think we could stomach another move, what a PITA. Still dreaming and actually planning for more snowbirding though.
The mortgage was pretty easy just a bit more paperwork documenting the IRAs and their value. Also had to actually set up a distribution so they could include that as income. Once we had the loan, no obligation to continue the distribution.

As far as moving, it's been a real chore and we've only moved a hundred miles up the freeway to Sedona! My next move will be to the cemetary lol.
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Old 06-15-2019, 04:57 PM   #17
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We were recently able to get a (surprisingly hefty) HLOC on our existing paid off home.

We're buying a place and plan on renovating it, then moving into it and selling our current home.

The bank was looking for our income - and we have been doing ROTH conversions - so our tax returns show enough "income" to make them happy. We also had to show them our assets - we disclosed our IRAs and taxable accounts.

I was commenting to my DW that we were in the mythical category of "the banks only loan to people who don't need the loan". We really don't need the loan, but wanted to have it in place to ease cash flow as we buy and renovate the place. We'd rather not have to cash out too much from the taxable account since there are large capital gains involved.

Our plan is to pay off the HLOC when we sell the current house.
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Old 06-15-2019, 05:03 PM   #18
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I was commenting to my DW that we were in the mythical category of "the banks only loan to people who don't need the loan". We really don't need the loan, but wanted to have it in place to ease cash flow as we buy and renovate the place. We'd rather not have to cash out too much from the taxable account since there are large capital gains involved.
Yeah, we're there, too. We could have paid all cash for our house last year but it was in our best interests to carry a mortgage because of how the clergy housing allowance works.
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Old 06-16-2019, 06:39 AM   #19
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Thanks for all the idea's - I will look further into everything brought up.



I think it would be very awkward for us to sell our current home first. We are looking for a place in the nearby Finger Lakes area of NY. Our primary needs are close access to the water for swimming and paddling, combined with a big garage workspace for projects, motorcycle, antique truck etc. And at least some reduction in expenses compared to our current place. We cannot afford lakefront so we could end up on a small lot in town or acreage in the country. We have all the stuff (tractor etc, etc) needed for the acreage but we really don't want to put everything in storage just in case the new place requires/fits it. The square footage of the home could vary quite a bit as well. It has been an interesting search so far trying to fit our needs in a spot within a couple miles of a state park, boat launch, or a small village/town water access point. It will be a balancing act with likely compromises to find the right place.



thanks so much for the idea's!


Jim
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Old 06-16-2019, 12:28 PM   #20
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My wife and I are "early retired" - me soon to be 55 and she is 52. We have no debt, including no mortgage on our home worth perhaps 250k. We have about 1.45m with about 2/3's in IRA funds, and the rest in mutual funds and about 125k in cash. ....
So you have almost $500k in non-retirement funds (mutual funds and cash). Can you somehow use those as collateral for a loan to buy the new place, then sell your existing home and use the proceeds to pay off loan?

Or if the mutual funds don't have much in unrealized gains then you could sell them, pay any tax on the gains (probably 0% or 15% depending on the amount of gain and your other income), use the proceeds for the new home and then replenish the mutual funds with the proceeds from the sale of your current home.
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