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Obtaining a first mortgage as a retiree
Old 07-25-2012, 11:58 AM   #1
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Obtaining a first mortgage as a retiree

I'm scratching around collecting information relative to financing another house in a different location as we are thinking about relocating. I'm doing due diligence on various options. I'd appreciate any feedback/experiences from those who have applied for first mortgages on homes after having retired.

My understanding is that it is next to impossible to get a bank/credit union to consider your assets in making a decision on whether or how much to loan. Instead, they are only interested in firm sources of regular income: SS, pensions, annuity payments, etc. Was that your experience? Did you have any success at all in getting assets (or at least the interest/dividends thrown off by assets) considered?

Are there any rules of thumb that could be used to determine how much a bank/credit union would be willing to lend. (I am aware of the rule that says housing costs shouldn't equal more than 28% of income, so one can back into a number that way.) Are there any other rules or generalities that apply?

Any other insights, pitfalls, advice from those who have "been there, done that" would be greatly appreciated.

BTW, I'm not trying to reignite another round of the "pay cash vs. have a mortgage debate. I'll make that decision in due course based on my situation; right now I'm just collecting information and doing comparative calculations. I did look in the FAQ and couldn't find this specific topic but if I've missed anything that's been discussed before, I'm happy just to be referred to previous threads.

Thanks.
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Old 07-25-2012, 01:01 PM   #2
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If you are in New York or Connecticut Homerica is giving No income verification loans for 1/2 percent over full documentation. I got mine in 2001 with Wells Fargo and it was a very good experience. If you are buying new construction many builders will finance you in order to unload inventory, Older construction try "Owner financing". Where I live now it is much easier. Simply pay taxes monthly on "phantom income" for one year (5% of the # you need to show a bank) for 1 year and the bank will give you a 20 year mortgage (rates are 9%).

Alternatively, deposit the mortgage payment in the bank for 6 consecutive months and they will give you the mortgage.
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Old 07-25-2012, 06:35 PM   #3
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Been there, done that.

Right, they don't care about assets, they care about your income stream. You have to make a mortgage payment each and every month, so they want to know that you have a more-or-less steady income that you can pay it from.

They don't want to hear "my monthly income is whatever I need to withdraw from my IRA". That doesn't look anything like steady income.

What they ARE happy with is an automatic monthly distribution from your IRA or 401k. They want to see a confirmation letter from the broker (IRA custodian) which verifies your instructions to pay out $X a month. And they need to see that the account has enough assets to support that withdrawal for 3 years.
You can cancel it after you close on the loan. And if you get the timing just right, you can cancel it before your first monthly draw.
If you miss that timing, just hold on to the check and after you close, call the IRA custodian and tell them to cancel the check. Or do a 90-day rollover into another IRA account.
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Old 07-25-2012, 07:32 PM   #4
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Been there, done that.

What they ARE happy with is an automatic monthly distribution from your IRA or 401k. ... And they need to see that the account has enough assets to support that withdrawal for 3 years.
How about monthly distributions from a personal account? Do they care about 3 years of AGI on tax forms?

-ERD50
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Old 07-25-2012, 08:04 PM   #5
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They used to go up to 40% of monthly income (pension, SS, annuity) if you have 5 star credit and no other debt. Don't know how things are today.
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Old 07-25-2012, 10:10 PM   #6
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How about monthly distributions from a personal account? Do they care about 3 years of AGI on tax forms?

-ERD50
We've refi'd 4 times since retiring, and they've never had any interest in seeing my 1040s. In fact, the last 3 times they actually said they didn't care to see it.

When you are retired and drawing from your investments, the amount of taxable vs. non-taxable income is largely under your control and completely up to you. I believe that that's why they don't have any interest in seeing your tax return. It's not like a non-retiree when virtually all your cash-flow and income shows up on W2s and 1040s.

They did NOT care about "monthly distributions from a personal account". I told them that my monthly draw was whatever I needed based on how much I spent that month, and they didn't want to hear it. They only wanted steady, regular monthly, documented money. Basically, they wanted to see something that looked and acted just like a regular paycheck.

They would not even consider regular monthly distributions from a joint taxable account. They said, "Since it's joint your wife could stop the distributions, and she could also empty the account and run off to Switzerland, and they how will you pay the mortgage?" Dumb. Makes no sense whatsoever. Whatever dastardly things a spounse could do, you could do yourself.
They insisted the money had to be in an IRA or 401k. They could grok "retirement account", but couldn't get their heads around the fact that a taxable account that isn't an IRA or 401K can supply income exactly the same way as a 401k.

What I think is, that these people are just typical paycheck-to-paycheck. Everybody understands a biweekly/monthly automatic deposit into your checking account made by a big-brother-type institution. Paycheck, pension, Social Security. Very few people have the same intuitive understanding of income that is discretionary and 100% under your control and at your whim. And they certainly don't understand when you tell them, "My income is whatever I want it to be."

Of course, it's FNMA that makes the rules. So that's the rules that a F.I.R.E.d person needs to know. As it was explained to me, the primary rules are: 1) automatic monthly distribution from an IRA or 401K (which is documented by a letter from the holder of the IRA/401k) and 2) enough assets to be able tp make that distirbution for 36 months.

You don't have to continue the distribution after the loan closes. You just need it set up when you apply. I said, "But even if there's 36 months worth now, the market could crash in 6 months and wipe out 1/2 of my account." They said, yeah it could, but nobpdy can predict or control what happens in the future. That's no different than losing your job right after getting the loan.
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Old 07-25-2012, 10:17 PM   #7
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We haven't gotten a loan since DH retired, but have thought about it and was told 2 things:

1. IRA income will be considered if it is a monthly systematic draw and there is at least enough money in the IRA to cover 3 years worth of draws. I think they want it to have been ongoing for some period of time before the loan is taken out but I don't know if there is any hard and fast length of time.

2. Also, there is a thing called an asset depletion loan. Basically there is a formula that considers age and assets -- including those in retirement accounts -- and basing a loan amount upon depleting those assets.
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Old 07-25-2012, 10:29 PM   #8
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Thanks rayvt - sounds like I won't be pulling a new loan anytime soon, I'm too far from drawing from my IRAs.

Ah, I see Katsmeow's comment on asset depletion loans, so I'll take a look into that, thanks.

I currently have an ARM, so I'm at 2.75%, and probably 3.0% next year. So I'm in gravy-land, and that could last a long time if rates stay low like this. I just can't help but think about locking in historic low rates.


-ERD50
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Old 07-26-2012, 08:32 AM   #9
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Quote:
Originally Posted by rayvt View Post
Been there, done that.

Right, they don't care about assets, they care about your income stream. You have to make a mortgage payment each and every month, so they want to know that you have a more-or-less steady income that you can pay it from.

They don't want to hear "my monthly income is whatever I need to withdraw from my IRA". That doesn't look anything like steady income.

What they ARE happy with is an automatic monthly distribution from your IRA or 401k. They want to see a confirmation letter from the broker (IRA custodian) which verifies your instructions to pay out $X a month. And they need to see that the account has enough assets to support that withdrawal for 3 years.
You can cancel it after you close on the loan. And if you get the timing just right, you can cancel it before your first monthly draw.
If you miss that timing, just hold on to the check and after you close, call the IRA custodian and tell them to cancel the check. Or do a 90-day rollover into another IRA account.
Thank you, rayvt; very helpful information. We havent't started to draw down - nor do we plan to for a while - our modest rollover IRAs. But most of our retirement income is from a pension and SS, so I'll base my assumptions on what I could borrow based on those as I go forward with my due diligence.

Thanks again.
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Old 07-26-2012, 10:09 AM   #10
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Originally Posted by rayvt View Post
We've refi'd 4 times since retiring, and they've never had any interest in seeing my 1040s. In fact, the last 3 times they actually said they didn't care to see it.

When you are retired and drawing from your investments, the amount of taxable vs. non-taxable income is largely under your control and completely up to you. I believe that that's why they don't have any interest in seeing your tax return. It's not like a non-retiree when virtually all your cash-flow and income shows up on W2s and 1040s.

They did NOT care about "monthly distributions from a personal account". I told them that my monthly draw was whatever I needed based on how much I spent that month, and they didn't want to hear it. They only wanted steady, regular monthly, documented money. Basically, they wanted to see something that looked and acted just like a regular paycheck.
...
Our experience has been different so it probably depends on where you are at, details of your wealth, and the institution you deal with.

In 2010 we refinanced and the 1040's were good enough. It just happened we did a lot of Roth conversions for the previous 2 years so the IRA distributions were substantial. That counted as income. Go figure.

Now in 2012 we are refinancing again with a credit union. The guy didn't even want to bother with our SS income. He was content with the irregular IRA distributions from this year plus a 1040 from last year showing IRA distributions.

So I'd say that if you are considering taking distributions this year (to spend or for Roth conversions) and going for a loan next year, then do it so that you can spruce up your 1040 AGI -- if your AGI looks low. Just a thought.
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