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Old 09-19-2016, 09:36 AM   #1
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We've been turned down by Wells Fargo for a mortgage for a second home based on a poor debt to income ratio of about 80 percent, even if we put 20 percent down. We have more than enough assets to pay this note but only have the wife's income. The banker stated we don't even have enough income to qualify for a 100 thousand equity line. Are there lenders who specialize in those with big cattle-small hats?
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Old 09-19-2016, 09:42 AM   #2
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Yeah, I have a line of credit secured by my investment account.
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Old 09-19-2016, 09:42 AM   #3
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Sorry- only sympathy here. Dh and I ran into this when we bought our house last year- they fixated on his SS plus my pension (total $34K) and ignored our assets, which are enough to pay for the house 10 times over. We ended up taking $50K out of our investments to supplement the small amount they'd loan us.


Most lenders want to resell their loans in the secondary market (to free up capital to make more loans) and the secondary market has some pretty picky definitions of "conforming" loans. People like us just fall between the cracks.
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Old 09-19-2016, 09:52 AM   #4
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Aren't ERISA qualified retirement plans (ie 401k's etc) unlimited protected assets in Bankruptcy proceedings? Maybe that has something to do with it.

If I were a lender I would definitely look at these protected assets differently than after tax assets.

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Old 09-19-2016, 10:01 AM   #5
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Aren't ERISA qualified retirement plans (ie 401k's etc) unlimited protected assets in Bankruptcy proceedings?

If I were a lender I would definitely look at these differently than after tax assets.

-gauss
Lenders have little autonomy as almost all loans are immediately sold to Fannie/Freddie and must conform strictly to Fannie/Freddie criteria. Very few loans are kept in portfolio. Portfolio lenders are out there, but the terms are much less favorable and the loans are ARMs. If the property is in California or Arizona. try Fremont Bank. They may lend in other states as well, check with them.
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Old 09-19-2016, 10:29 AM   #6
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We have had no issues so far with credit unions considering our portfolio income in refinancing. One said we had to show 3 months of steady "income", which could be moving money monthly from a savings or retirement account to a checking account for three months straight. So far we've refinanced the house and took out a home equity line of credit. We didn't end up buying a rental property but got the approval letter from the CU saying we were qualified to do so as well during this same time.
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Old 09-19-2016, 11:01 AM   #7
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Use margin or aggregate the margin limit of your investment accounts and use that money.
Can get a cheaper margin rate than mortgage rate from most places.
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Old 09-19-2016, 11:01 AM   #8
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Lenders have little autonomy as almost all loans are immediately sold to Fannie/Freddie and must conform strictly to Fannie/Freddie criteria. Very few loans are kept in portfolio. Portfolio lenders are out there, but the terms are much less favorable and the loans are ARMs. If the property is in California or Arizona. try Fremont Bank. They may lend in other states as well, check with them.
There is a mechanism for lenders to consider retirement assets in the underwriting process. See Refinancing Your Mortgage on a Fixed Income - Work and Retirement - AARP Ever...

Quote:
The new rules, however, just might make all the difference — if you can find a loan officer who's willing to do the necessary legwork. Jeff Lipes, a past president of the Connecticut Mortgage Bankers Association, says the new calculations to boost retirees' eligibility go like this: Let's say a retiree has $1 million in an IRA or 401(k) and wants a 30-year fixed-rate mortgage. Lenders calculate 70 percent of that $1 million (the balance is reduced by 30 percent to account for market volatility; no rate of return is assumed). They divide that $700,000 (that's 70 percent of $1 million) by the term of the loan (such as 360 payments for a 30-year mortgage).

Using this formula gives the borrower an extra $1,944 to show for monthly income. So consider Eberle as an example. That $1,944 in assets would be added to his $2,400 monthly Social Security benefit, almost doubling his income and enhancing his ability to qualify for a mortgage. (By the way, borrowers aren't required to tap those retirement assets.)

For retirees, "this can make a significant difference in determining whether they qualify or don't qualify," Lipes says.
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Old 09-19-2016, 11:05 AM   #9
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Thanks for the input. If we break some PenFed CDs we would only be 100 thousand short. The penalty seems stiff, 30 percent of the interest we would have earned if kept to maturity. Not happy about that but we'd save on some closing costs. I'm thinking we could find a bank or credit union to lend us 100k.
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Old 09-19-2016, 11:59 AM   #10
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.

Now that I am retired, have no debt, excellent credit and comfortably live on a modest income, I can not qualify for a mortgage.

Even though I have a large nest egg, it is my intentionally kept low income that is the problem.

Bottom-line, someone with a six-figure job [which he could lose tomorrow] is more mortgage worthy than someone like me who has the invested resources to buy the house outright.

Years ago I remember Dave Ramsey talking about this... now I am living it.

So, instead of getting a mortgage to buy a new home, I am still living in my paid-off home... life is good.

.
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Old 09-19-2016, 12:26 PM   #11
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I guess reply # 9 and 10 cross posted with post #8 which links a solution to this issue. I asked my credit union about this and they seemed very willing to consider retirement assets using this formula.


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Old 09-19-2016, 12:30 PM   #12
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We have had no issues so far with credit unions considering our portfolio income in refinancing. One said we had to show 3 months of steady "income", which could be moving money monthly from a savings or retirement account to a checking account for three months straight.
I was a year post-retirement when we applied (DH had been on SS for years). Our track record was spotty because I just moved money from the brokerage account in chunks when we needed it, sometimes extra if we had a house project that we couldn't fund from our standard monthly "allowance". Despite my lovely spreadsheet that tracked $$ in and out of the major accounts and showed that our assets had actually grown by $100K since my retirement, we didn't fit the tick boxes.
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Old 09-19-2016, 12:43 PM   #13
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I guess reply # 9 and 10 cross posted with post #8 which links a solution to this issue. I asked my credit union about this and they seemed very willing to consider retirement assets using this formula.

I just wanted to point out the absurdity of a mortgage company preferring job income [which could suddenly stop] to real assets.

But things [even things that seem negative at the time] happen for a reason.

I no longer need a mortgage because I am no longer interested in a new home. I have decided to stay put. Ironically, the best decision I could have made was made for me.

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Old 09-19-2016, 12:52 PM   #14
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I think I need to study different ways to access capital in ER. I assumed a loan wouldn't be a problem. Silly me. I've got an application going for a home equity loan at 10 percent of the value of my home. If they turn that down it sure will make me wonder.
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Old 09-19-2016, 01:16 PM   #15
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Thanks for the input. If we break some PenFed CDs we would only be 100 thousand short. The penalty seems stiff, 30 percent of the interest we would have earned if kept to maturity. Not happy about that but we'd save on some closing costs. I'm thinking we could find a bank or credit union to lend us 100k.
Try getting a passbook loan until the CD matures. It has to be cheaper than losing 30% of your interest
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Old 09-19-2016, 01:23 PM   #16
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I did a refi in July and all the credit union wanted was a copy of the award letter for my pension.
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Old 09-19-2016, 01:27 PM   #17
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I just wanted to point out the absurdity of a mortgage company preferring job income [which could suddenly stop] to real assets.
So true.

Last year I decided to buy my home in cash. I sold mutual funds to do it, plus used my cash reserves, and replenished my portfolio somewhat with the proceeds from selling my prior home. For me, paying in cash makes life simpler, and I like not having to deal with mortgage company tyrants and all those stupid hoops they want people to jump through. I don't like to be jerked around.

But for the OP and many other forum members, YMMV and there are many ways to pay for a home.
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Old 09-19-2016, 01:48 PM   #18
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I did a refi in July and all the credit union wanted was a copy of the award letter for my pension.

This issue applies to folks without enough pension/SS income to qualify.


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Old 09-19-2016, 01:56 PM   #19
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I did a refi in July and all the credit union wanted was a copy of the award letter for my pension.

My pension is $933/month. They were not impressed.
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Old 09-19-2016, 02:06 PM   #20
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I just wanted to point out the absurdity of a mortgage company preferring job income [which could suddenly stop] to real assets.

But things [even things that seem negative at the time] happen for a reason.

I no longer need a mortgage because I am no longer interested in a new home. I have decided to stay put. Ironically, the best decision I could have made was made for me.

.

One of the problems is they look at debt payments to income ratios.... so if you have low income, then you 'must' have low monthly payments...


I do not have to agree with their methods, just understand them and how to get around them if I need to....
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